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Health Care Reform to Bend the Cost Curve Down? Medicare Actuary Says No.

Leonard Gilroy
April 23, 2010, 10:17am

Hopefully Americans will find this news item today to be a "big #!&$%#* deal," though I suspect few will be surprised that the federal government has sold them yet another bill of goods. Medicare's chief actuary, Richard Foster, released a report yesterday throwing chilly cold water on the President's claims that the new health care reform law will bend the cost curve down. From the Associated Press:

President Barack Obama's health care overhaul law is getting a mixed verdict in the first comprehensive look by neutral experts: More Americans will be covered, but costs are also going up. Economic experts at the Health and Human Services Department concluded in a report issued Thursday that the health care remake will achieve Obama's aim of expanding health insurance adding 34 million to the coverage rolls.

But the analysis also found that the law falls short of the president's twin goal of controlling runaway costs, raising projected spending by about 1 percent over 10 years. That increase could get bigger, since Medicare cuts in the law may be unrealistic and unsustainable, the report warned. [...]

In particular, concerns about Medicare could become a major political liability in the midterm elections. The report projected that Medicare cuts could drive about 15 percent of hospitals and other institutional providers into the red, "possibly jeopardizing access" to care for seniors. [...]

The report acknowledged that some of the cost-control measures in the bill Medicare cuts, a tax on high-cost insurance and a commission to seek ongoing Medicare savings could help reduce the rate of cost increases beyond 2020. But it held out little hope for progress in the first decade.

"During 2010-2019, however, these effects would be outweighed by the increased costs associated with the expansions of health insurance coverage," wrote Richard S. Foster, Medicare's chief actuary. "Also, the longer-term viability of the Medicare ... reductions is doubtful." Foster's office is responsible for long-range costs estimates.

The report's most sober assessments concerned Medicare. In addition to flagging provider cuts as potentially unsustainable, the report projected that reductions in payments to private Medicare Advantage plans would trigger an exodus from the popular alternative. Enrollment would plummet by about 50 percent. Seniors leaving the private plans would still have health insurance under traditional Medicare, but many might face higher out-of-pocket costs.

In another flashing yellow light, the report warned that a new voluntary long-term care insurance program created under the law faces "a very serious risk" of insolvency.
Politico has the full report here. And remember that since the expanded coverage doesn't kick in until FY2014, the actuary's cost analysis only captures 6 years of the costs of expanded coverage for the 10 year period. Makes one wonder what a projection for FY2014-23 would look like.

Leonard Gilroy is Director of Government Reform


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