Health Reform WK-EDGE Post-ACA health care spending projections continue to decline
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Wednesday, June 29, 2016

Post-ACA health care spending projections continue to decline

By Harold Bishop, J.D.

Projected national health spending for 2014 to 2019 has dropped by about $2.6 trillion since the 2010 Patient Protection and Affordable Care Act baseline forecast, according to an Urban Institute report. This projected drop in spending is reflected in large projected declines in Medicare ($455 billion), Medicaid ($1050 billion), private insurance ($664 billion), and other health spending projections ($456 billion). The Urban Institute attributes these declines to the 2012 U.S. Supreme Court decision making the Medicaid expansion under section 2001 of the ACA optional for the states, the Budget Control Act of 2011 (BCA) (P.L. 112-25) (i.e., sequestration), and the sluggish economic recovery after the recession.

With support from the Robert Wood Johnson Foundation, the Urban Institute has undertaken a project to monitor and track the implementation and effects of the Patient Protection and Affordable Care Act of 2010 (ACA) (P.L. 111-148). The project began in May 2011 and will continue for several years. The most recent Urban Institute report on the project was issued in April 2015 (see Recession more likely cause of spending growth reduction, not ACA, April 15, 2015).

This June 2016 Urban Institute report compares the most recent CMS forecast released in July 2015 to the 2010 ACA baseline forecast. CMS’ July 2015 forecast incorporated actual spending data from 2013 and projected spending for 2014 through 2024. The 2015 forecast also incorporated the Medicare Access and CHIP Reauthorization Act (MACRA) (P.L. 114-10), passed in April 2015, that permanently eliminated the sustainable growth rate (SGR) system for setting physician payment rates in Medicare.

Medicare. The report attributes the $455 billion Medicare spending decline for 2014 to 2019 on the sequestration under the BCA, which required Medicare payments for all types of services be reduced 2 percent beginning in April 2013, and the lower-than-expected spending growth between 2010 and 2014.

Medicaid. The projected Medicaid spending for 2014 to 2019 fell by $1,050 billion in the 2015 CMS forecast. According to the report, this was partly because of the 2012 U.S. Supreme Court decision in the National Federation of Independent Business v. Sebelius, which made the ACA Medicaid expansion optional for states and thereby significantly reduced enrollment projections. For example, the ACA baseline forecast predicted 2014 Medicaid enrollment of 78.8 million enrollees, but this fell to 66.5 million enrollees in the 2015 forecast after allowing for the Supreme Court’s decision. The projected average annual growth in spending per Medicaid enrollee for 2014 to 2019 also fell between the ACA baseline forecast and the 2015 forecast, from 6.8 percent to 3.3 percent, according to the report.

Private health insurance. Private spending projections for 2014 to 2019 were $664 billion lower in the 2015 forecast than in the ACA baseline forecast. The report attributed this decline to: (1) slower spending growth between 2010 and 2014 than had been expected in 2010; (2) a sluggish economic recovery; (3) lower-than-expected prescription drug spending because of patent expirations and increases in generic drug prescribing; and (4) a substantial shift toward higher deductibles and cost sharing in private plans, some of which may have been adopted in anticipation of the excise tax on high-cost plans required by section 9001 of the ACA.

Out-of-pocket spending. In the 2010 ACA baseline forecast, CMS predicted a significant reduction in out-of-pocket expenditures due to the expansion of health insurance under the ACA. According to the report, the 2015 CMS forecast projects out-of-pocket spending for 2014 to 2019 to be $2 billion more than in the 2010 ACA baseline forecast.

Other health spending. CMS estimates of "other health spending" includes spending on the Children’s Health Insurance Program (CHIP), the U.S. Department of Defense and U.S. Department of Veterans Affairs health programs, public health activity, and investments such as new construction and capital equipment. While the 2010 ACA baseline forecast projected a small decline, by 2015, the projected spending fell by $456 billion for 2014 to 2019 compared to the baseline forecast. The report attributes most of the reduction to declines in investment spending, perhaps related to the slow economic recovery and anticipation of less demand for new construction and medical devices because of payment constraints in the ACA.

Companies: Robert Wood Johnson Foundation; Urban Institute

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