Wall Street Journal misleads on cost control under health care reform

A Wall Street Journal editorial claimed that a recent Center for Medicaid and Medicare Services (CMS) report rebuts the Obama administration's argument that health care reform will lower health care costs. However, as Third Way has noted, the CMS report indicates that health care reform would actually result in lower health care spending per insured person over the next decade, and according to Ezra Klein, the trend outlined by CMS suggests that overall health spending will be lower after 2019.

Citing CMS report, WSJ calls health care reform cost control a “fantasy”

Wall Street Journal: CMS report “is one more rebuke to the White House fantasy that a new entitlement will lower health costs.” In an April 26 editorial, The Wall Street Journal cited a report from CMS actuaries to call President Obama's claim that health care reform will reduce costs a “fantasy” :

In Massachusetts, Mr. Patrick says his price-control sally will be followed by reviewing what doctors and hospitals charge -- or in other words for price controls on the medical services that make up most health spending. ObamaCare will gradually move in the same direction.

Or maybe not so gradually, judging by the study released last last week by Richard Foster, the Obama Administration's Medicare actuary. Mr. Foster predicts net national health spending will increase by about 1% annually above the status quo that is already estimated to be $4.7 trillion in 2019. This is one more rebuke to the White House fantasy that a new entitlement will lower health costs.

But CMS report indicates per person spending will decrease

Third Way: Health care reform reduces spending per insured person. In an April 23 post, The Washington Post's Ezra Klein wrote that the CMS report indicates that “though total spending nudges up (though by the end of the first 10 years, it's coming back down), spending per insured person actually comes down.” Klein cited Third Way, which concluded: “The fact is that by 2019, national health spending per insured person will be $15,132 compared to $16,812 without the new law. That's 10 percent less spending per insured person than it would have been, according to the actuary's report.”

CMS report doesn't capture cost control that kicks in after 2019

CMS report: Overall health care spending increases in first decade. The CMS report stated of the health care law's impact on national health expenditures (NHE) in the 2010-2019 period:

[W]e estimate that overall national health expenditures under the health reform act would increase by a total of $311 billion (0.9 percent) during calendar years 2010-2019, principally reflecting the net impact of (i) greater utilization of health care services by individuals becoming newly covered (or having more complete coverage), (ii) lower prices paid to health providers for the subset of those individuals who become covered by Medicaid, (but with net Medicaid costs from provisions other than the coverage expansion), and (iii) lower payments and payment updates for Medicare services. Although several provisions would help to reduce health care cost growth, their impact would be more than offset through 2019 by the higher health expenditures resulting from the coverage expansions.

Klein: Cost controls “really kick in” after 2019. Klein wrote in his April 23 post: "[T]he CMS study projects only to 2019. That's not very long, given that the bill is implemented in 2014. So it doesn't do much to project how cost controls like the Independent Payment Advisory Board will work in the second decade, which is when they really kick in." Klein added that “there's reason to think CMS is conservative in its cost estimates,” noting that the estimate for Medicare Part D “was 37 percent too high.”

After 2016, increase in national health spending as a result of health care reform begins to shrink

CMS: Increases in national health expenditures are largest in 2016 and “gradually decline thereafter.” The CMS report stated:

In aggregate, we estimate that for calendar years 2010 through 2019, NHE would increase by $311 billion, or 0.9 percent, over the updated baseline projection that was released on June 29, 2009. Year by year, the relative increases are largest in 2016, when the coverage expansions would be fully phased in (2.0 percent), and gradually decline thereafter to 1.0 percent in 2019, as the effects of the Medicare market basket reductions compound and as the excise tax on high-cost employer health plans becomes effective. The NHE share of GDP is projected to be 21.0 percent in 2019, compared to 20.8 percent under prior law.

Klein: “Assuming the trend holds, the second decade will see national health expenditures fall below what spending would've been if the bill hadn't passed.” In his post, Klein noted that the 1 percent NHE increase cited by The Wall Street Journal is not an annual number as the Journal claimed, but the total for the years 2010-2019. Klein further wrote that after 2016, when CMS estimates that NHE will be 2 percent higher than it would be without health reform, “cost controls kick in over those years and bring it down to 1 percent” :

CMS is looking only at the spending side. And here's what it finds: In 2019, implementation of the Affordable Care Act will reduce the ranks of the uninsured by 34 million people and increase nation health expenditures by 1 percent.

One percent.

And that 1 percent is actually 1 percent and falling: When the legislation is fully implemented in 2016, the spending increase will be 2 percent. But cost controls kick in over those years and bring it down to 1 percent. Assuming the trend holds, the second decade will see national health expenditures fall below what spending would've been if the bill hadn't passed. So that's the bottom line of the report: We're covering 34 million people and come 2019, spending is expected to be one percentage point -- and falling -- above what it would've been if we'd done nothing.