June 1, 2010

The CMS Actuary Report: What’s the Bottom Line? Conclusions Uncertain

By

fsheeder100The recently released Department of Health and Human Services' Estimated Financial Effects of the Patient Protection and Affordable Care Act (the "Report") concludes that healthcare reform will cover more people and cost $828 billion over the next decade.


The Patient Protection and Affordable Care Act ("PPACA"), as amended by the Health Care and Education Reconciliation Act of 2010, achieves President Obama's aim of expanding health insurance - 34 million are being added to the coverage rolls - but the report indicates that healthcare reform falls short of the President's goal of controlling runaway costs, instead raising projected spending by about 1 percent over 10 years. The report concludes that healthcare reform will increase costs by $251 billion during the next decade; by 2019, health costs would rise to 21.0 percent of the gross domestic product, compared to 20.8 percent under prior law.


The report projects that employers and individuals will take roughly three to five years to adapt fully to the new insurance coverage options, and that the enrollment of additional individuals under the Medicaid coverage expansion will be completed by the third year of implementation. Because of these transition effects and the fact that most of the coverage provisions will be in effect for only six of the ten years of the budget period, the cost estimates shown in the report do not represent a full 10-year cost for the new legislation. The CMS Actuary acknowledges that PPACA has many unprecedented provisions that make some of the report's conclusions uncertain.


The report concludes that PPACA would cost $828 billion over the next decade - one-half of which, $410 billion, is attributed to Medicaid - while also saving $577 billion, leaving a net overall cost of $251 billion before consideration of additional federal administrative expenses and the increase in federal revenues. The projections do not take into account changes to the tax code, including a tax on high-cost ("Cadillac") insurance plans. The mandated coverage provisions will lead to shifts across coverage types and, when 34 million more people are projected to be insured by 2019, some form of coverage for 93 percent of all Americans. Of that 34 million figure, 18 million will receive Medicaid coverage due to the expansion of eligibility to adults living under 133 percent of the federal poverty level. The report concludes that the anticipated additional demand for health services initially could be difficult to meet with existing health provider resources and could lead to price increases, cost-shifting, and changes in providers' willingness to treat patients with low-reimbursement health coverage.


Estimated overall national health expenditures under PPACA would increase by $311 billion during calendar years 2010 through 2019. The relative increases in total cost are largest in 2016, when the coverage expansions will be fully phased in, and gradually decline thereafter. Although several PPACA provisions would help reduce healthcare cost growth, their impact would be more than offset through 2019 by the higher health expenditures resulting from the coverage expansion.


The increases in federal expenditures will be offset partially by the estimated $120 billion paid by affected individuals who choose to remain uninsured and employers who opt not to offer coverage. However, most of the provisions of PPACA that were designed in part to reduce the rate of growth in healthcare costs would have a relatively small savings impact.

 

About the Author

 

Frank E. Sheeder, Esq., has defended clients against civil and criminal fraud allegations brought by the government and other hostile third-party litigants - especially whistleblowers - for more than 20 years. He focuses on complex healthcare litigation and regulatory compliance. He has appeared before multiple federal and state courts and represents clients opposite a multitude of federal and state agencies, whistleblowers, and other plaintiffs.

 

Frank has advised clients from virtually all segments of the health care industry, such as health systems, hospitals, academic medical centers, physician groups, DME providers, long-term care providers, ancillary providers, pharmacies, laboratories, and allied health professionals. Those cases generally involve Medicare, Medicaid, and other federally funded health care programs. He also has defended putative class actions and civil cases involving parallel criminal proceedings. He has been counsel of record in more than 30 criminal cases in federal district court.

 

He is a Certified Ethics and Compliance Professional and is an author of the treatise, Corporate Governance and Compliance for Health Care: A Practical Guide, Wolters Kluwer; Lslf/Cdr edition (2007). Mr. Sheeder is first vice president and board member of the Health Care Compliance Association and is in line to be the organization's next president.

 

Contact the Author

 

fesheeder@JonesDay.com

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