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Does health-care reform bend the cost curve up?

At today's presidential news conference, ABC's Jake Tapper asked about the recent CMS report suggesting that health-care reform will bend the cost curve up. I don't think President Obama's answer was particularly clear, so let me explain what's going on.

The key finding from the CMS report is that "relative to our February 2010 projections under prior law, average annual growth in national health spending over the projection period [2009-2019] is estimated to be 0.2 percentage point higher than our previous estimate." Over that same period, "the number of uninsured people is estimated to be reduced by 32.5 million."

So even in the most simplistic analysis, we're covering about 10 percent of the country and increasing spending growth by 0.2 percent. Seems like a good deal to me. But it's actually a better deal than that. Here's what the cost curve -- or maybe I should say cost line -- looks like:

2010.0788figEX5.jpeg

What you're seeing here isn't the cost curve bending up. It's a one-time increase in the level of spending. That's the big jump in 2014, the year the exchanges and subsidies come online. So when you compare 2014 to 2013, spending growth seems like it's gone up a bunch. But by 2016, we're back to normal. In fact, we're better than normal: "For 2015-19, national health spending is now projected to increase 6.7 percent per year, on average -- slightly less than the 6.8 percent average annual growth rate projected in February 2010."

In other words, 2014 is a one-time increase in spending level as we get 30 million new people covered. After 2014, costs grow more slowly than they would without the health-care reform bill. And as some of you know, the major spending controls, like the excise tax and the Medicare board, only really start in 2018, so we can expect spending to slow even more in the years beyond this projection. And that, of course, is exactly what the Congressional Budget Office found when it looked at the bill on a longer timeframe.

So, the nickel version: Spending goes up in 2014 because we're covering 30 million new people and then down after that because we're controlling costs in the system.

By Ezra Klein  |  September 10, 2010; 12:30 PM ET
Categories:  Health Reform  
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Comments

this is all nice and politically tasty but please come talk to me in 2019 when we're talking about costs. And again as earlier posts have said it seems as if the largest cost containment factor is going to be the excise tax (which could have and should have been stronger had it not been weakened by your buddy Andy Stern). And that in itself won't reduce costs, just benefits. Its already happening in the Northeast and when hear that employers are passing on costs to employees. How do they do that? Less exposure to the insurance companies means less premium (and little or no excise tax come 2018) and more cost to the patient/employee.

That's not cost control. That's cost shifting.

Posted by: visionbrkr | September 10, 2010 12:52 PM | Report abuse

Ezra

So how does that curve manage to get back to normal so fast after 2014?

If it's because of cost controls as you suggest, then why doesn't the curve continue to get better and better as the years go by instead of just staying "normal"?

Your explanation doesn't adequately describe the fact the two curves seem to stay stuck to one another long after 2014 has passed.

Posted by: lauren2010 | September 10, 2010 12:58 PM | Report abuse

"Spending goes up in 2014 because we're covering 30 million new people and then down after that because we're controlling costs in the system"

The CMS report assumes a 23 percent reduction in physician payment rates. This won't happen, and therefore, the projections of moderate growth are way off. So spending will go up because we're covering 30 million new people, and will continue to go up because Congress won't cut physician payments. And the one possible brake on the system, the IPAP is prohibited from submitting proposals that would ration care, increase taxes, change Medicare benefits or eligibility, increase beneficiary premiums and cost-sharing requirements, or reduce low-income
subsidies under Part D.

Posted by: NoVAHockey | September 10, 2010 1:00 PM | Report abuse

Actuaries at the Centers for Medicare and Medicaid Services (CMS) reported today in Health Affairs that overall health spending will constitute 20 percent of the economy by 2019, up from 17 percent now.

An Associated Press article (in this very newspaper!) about the report says that “factoring in the law, Americans will spend an average of $13,652 per person a year on health care in 2019.

Without the law, the corresponding number would be $13,387. That works out to $265 more with the overhaul.”

That hardly “bends the cost curve down,” as Mr. Obama and his stooge Ezra claim. And the worst news is in the details. The report assumes that the law’s reduction in Medicare payments to doctors — 30% over the next three years — will actually take place. Congress will not let payment rates be reduced to these levels, so health spending will increase further.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.2010.0788

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/09/AR2010090900528.html?hpid=topnews

Posted by: Jake43 | September 10, 2010 1:05 PM | Report abuse

Even if the cost curve eventually bends down those of us paying the bills are seeing our costs go way up, and we already can't afford what we're paying. This is a disaster politically because it is a disaster in reality for many millions who can't afford to pay more.

Posted by: AuthorEditor | September 10, 2010 1:24 PM | Report abuse

You are simply posting what the email from the white house communications director, Pfeiffer, told you to.

Posted by: truck1 | September 10, 2010 1:57 PM | Report abuse

"Does health-care reform bend the cost curve up?" Yes!

The fact that there is a new addition to the puzzle -- a slew of illegal immigrants who receive coverage and are (by PPACA Sec. 1501) exempt from paying for it -- doesn't change the fact that each American citizen pays more for health care due to the PPACA. Anyone who can't recognize the increased cost -- which may (or may not) be due to "better benefits" -- is a fool.

See, inter alia, http://online.wsj.com/article/SB10001424052748704362404575480161749608830.html

Posted by: rmgregory | September 10, 2010 2:08 PM | Report abuse

As soon as Obama made his "deal" with the drug companies, the costs of my maintenance drugs went up. Apparently the drug companies raised the prices before the "deal" went into effect so the gave up NOTHING!

Thank you Obama...

REMEMBER IN NOVEMBER...VOTE THEM OUT!!!

http://docs4patientcare.org/Images/Waiting_Room_Letter.pdf

Posted by: AngryMobVoter | September 10, 2010 2:44 PM | Report abuse

Ezra, I expected more from you than to parrot that "30 million" number. That's 15 million that are supposed to go on Medicaid, which will be severely cut back by Republicans. Then the other 15 million who will "now have" healthcare are actually just projected to comply with the mandate, but that too is a wild overestimate.

The total number of newly-covered due to ACA will actually be about 3 to 5 million.

Posted by: michaelh81 | September 10, 2010 2:52 PM | Report abuse

I am not clear about one thing: Are the Republicans now complaining that:

1. Health Care reform is too expensive because costs will not go down sharply, or

2. Health care reform is too expensive because we will get more coverage for the same cost?

It is good for them to make up their minds why they are opposed.

Posted by: AMviennaVA | September 10, 2010 2:59 PM | Report abuse

Thinking you can cover an extra 30 million people at less money is like Republicans saying that we could have another 2 wars but the defense budget and the accompanying costs of those wars will go down.

ITS NOT POSSIBLE. We're already starting to see the fruits of that. Sure Dems can eat away at the edges but unless they want to tell doctors they're making "X" they're not going to touch costs no matter how many cute pilot programs they talk about. The best argument they have is if you assume people won't go to the ER and will go to a Primary care doctor (but then again there's a huge shortage of those that aren't being addressed).

Posted by: visionbrkr | September 10, 2010 3:17 PM | Report abuse

AMViennaVA: "The best argument they have is if you assume people won't go to the ER and will go to a Primary care doctor"

But that didn't happen when RomneyCare got passed in MA.

Romney also claimed that the newly insured would now go to primary care physicians instead of Emergency Rooms.

But instead, the newly insured started making more use of BOTH types of medical services--and lots of other medical services too.

MA residents have now learned the hard way that the more one is insured, the more health care services he will demand--now that he doesn't have to pay for them himself.

Studies of health care in other states have confirmed this phenomenon: The only way to get people to consume fewer services is to force them to have more skin in the game. But for the poor, that's not feasible.

Posted by: sinz52 | September 10, 2010 6:08 PM | Report abuse

--"What you're seeing here isn't the cost curve bending up. It's a one-time increase in the level of spending."--

You're *lying*, Klein. Your own post notes that the estimate is "0.2 percentage point higher". The curve goes up.

Further, the curve continues to bend up in real terms, since each subsequent year's rise, whether at five percent or six percent, outpacing inflation, involves a greater number of real dollars. A yearly six percent rise looks nice and flat in Klein's graph, but plot the dollar amounts and the thing isn't flat. All in a day's work at the Washington Post, I guess.

With the further nice thing about being a paid propagandist is that you can mouth the government line without having to refer to the nasty little caveats lining the government's legal little bird cage. From the link at the top...

"Consistent with all past iterations of the national health spending projections, these projections remain subject to substantial uncertainty. Little historical precedent exists for how the health system reforms will operate in practice; how individuals, families, and businesses will respond to the new requirements and financial incentives; or how the effects of coverage changes will affect personal health spending.

"Moreover, supply-side impacts, such as behavioral changes on the part of providers in reaction to an influx of new prospective patients as a result of the Affordable Care Act, cannot be estimated with any certainty at this time. In addition, many aspects of the legislation will not be known in detail until they are implemented through the regulatory process. Finally, the trajectory of future economic recovery and growth remains uncertain."

Posted by: msoja | September 10, 2010 6:36 PM | Report abuse

I retract my previous comment, as I do not wish to provoke Kathleen Sebelius' ire...

//cite
"There will be zero tolerance for this type of misinformation and unjustified rate increases," Health and Human Services Secretary Kathleen Sebelius said in a letter to the insurance lobby.

"Simply stated, we will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections," Sebelius said. She warned that bad actors may be excluded from new health insurance markets that will open in 2014 under the law.
//end cite

http://news.yahoo.com/s/ap/20100909/ap_on_bi_ge/us_health_insurance_warning

Health Insurance companies should be sent to Siberia! Comrade!

Posted by: msoja | September 10, 2010 8:29 PM | Report abuse

Ezra, thanks for the laugh!

Does anyone (who isn't on drugs) have any confidence - whatsoever - about what the costs will be in 2019?

What happens when (and it will happen, mark my words) some congress repeals some or all of the cost controls?

Posted by: invention13 | September 11, 2010 1:24 AM | Report abuse

Your math is quite fuzzy. Time to update basic charting and table reading skills.

1. Even going by the chart above, you fail to notice that the trend from 2018 to 2019 is actually upwards. If it is possible to project forward, it is likely that the growth rate is actually going to trend back to higher levels or at least the old level (for that to happen it has to suddenly start flatting after 2020 or so. No way is the report predicting anything of that sort)

2. We could play the growth rate game all we want. But the reality is that even after a full 9 years of collecting additional public funds (taxes and such) and delivering the service only for 5 years out of this period, total NHE for 2019 is $4.57 trillion with the "affordable health care" law vs. $4.48 trillion in the old "unaffordable health care". It is clear the only thing you are bending is the truth.

Besides these projections are just that. The accuracy of these things is anything but guaranteed. If you look at the 2001 medicare growth rate projections (about 2-2.5%) upto 2009 and look at the total medicare expenditures projected for 2009 in 2001 vs what actually is the case for 2009, the projections are off by at least $100 billion. So to somehow assume that we could add 30 million people to health insurance and come out even is a fairy tale we should believe after we see the projections turn into reality.

But even if you do believe the projections they do no such thing as bend the cost curve. You folks bend over backwards to make twisted arguments to prop up an argument that has no numerical merit whatsoever.


Posted by: ramakrdude | September 11, 2010 3:00 AM | Report abuse

All this shows a increasing percentage of a larger base. Further the cost as a % of GDP assumes a healthy growth rate for domestic production.

Uh, suppose health spending is not correlated to production but continues to rise as production declines.

Uh, oh!

Posted by: jackbrumbelow7 | September 11, 2010 10:27 AM | Report abuse

All this shows a increasing percentage of a larger base. Further the cost as a % of GDP assumes a healthy growth rate for domestic production.

Uh, suppose health spending is not correlated to production but continues to rise as production declines.

Uh, oh!

Posted by: jackbrumbelow7 | September 11, 2010 10:28 AM | Report abuse

All this shows a increasing percentage of a larger base. Further the cost as a % of GDP assumes a healthy growth rate for domestic production.

Uh, suppose health spending is not correlated to production but continues to rise as production declines.

Uh, oh!

Posted by: jackbrumbelow7 | September 11, 2010 3:41 PM | Report abuse

Why do you stop your thinking in 2019? The real financial benefits accrue in the decades after that, and meanwhile, more American have covergage.

Posted by: Jimdotz | September 11, 2010 6:36 PM | Report abuse

To those who want to dispute this article:

The problem is not and has not been healthcare costs. The problem is the healthcare insurance racket, cartel, whatever you want to call it.

The CEO of United Healthcare has averaged compensation of $100 million a year. And he's the CEO of just one of the big players. The CEO of UHC, by the way, doesn't diagnose, prescribe, operate or anything else that is associated with a direct healthcare cost. If you can think of one, please feel free to share that info.

There is no argument that satisfies me that this is the most efficient way to get people covered. And yes, the government handling it is that way. Docs can still do just fine, thank you. But if you're actually serious about cutting healthcare costs, focus on the people who are pulling tens of millions away without directly improving the lives of anyone other than his family.

Posted by: etlingjm | September 11, 2010 10:38 PM | Report abuse

Good news for Ezra. Your silly claims about 2014 will never be refuted.... because Obamacare is going bye-bye in 2013!

Posted by: wbcoleman | September 12, 2010 12:11 AM | Report abuse

Unfortunately, there is not a single insightful comment on this thread.

1. lauren2010 and msoja, you aren't very good with numbers. The data Ezra provided was a year-by-year increase as a percent change. The one-time 2014 bump is because more people are being insured. That bump is not repeated in 2015 because there aren't a lot of new people being insured, they came in 2014 and are built into that total. if you don't get that (lauren2010) stop commenting until you figure out how percent changes work. msoja, there is no lie from Ezra. That 0.2% cumulative 10 year change comes entirely in 2014. If you look at the other 9 years combined, they actually have a net increase that is slightly lower than the previous CMS projections. 2011 in particular comes out significantly lower than previous estimates due to ACA. When you average 2014 and the other 9 years, then you get a 0.2% increase

2. You cannot blame ACA for the "doc fix" for Medicare. The fact that it is unrealistic to expect that the cuts mandated in the 90s will be made has nothing to do with ACA. D and R administrations and congresses have kicked the ball down the road on those mandated cuts for years. This is because of the power of the physician lobby. To imply otherwise is dishonest.

3. How quickly we forget that other nations have costs that are 50% of ours and quality that is equivalent overall, and access that is as good or better in most economic peer nations. Don't tell me docs and hospitals can't deal with the cuts. They can deal with them the way every other industry deals with pressures to become more efficient...by becoming more efficient and shedding unnecessary jobs. It is a shame conservatives have lost their way on this point, out of a desire to wage ideological war over government expansion of access to coverage.

Posted by: jdhalv | September 12, 2010 11:01 AM | Report abuse

So the PER PERSON healthcare costs is going up AND the tax payers are now on the hook to pay that higher per person price for 40 million new healthcare consumers.

Yeah! What a great deal! Now I understand why this bill is so popular!

Posted by: FastEddieO007 | September 12, 2010 9:12 PM | Report abuse

@jdhalv:"You cannot blame ACA for the "doc fix" for Medicare. The fact that it is unrealistic to expect that the cuts mandated in the 90s will be made has nothing to do with ACA"

What problem was Obama and Pelosi trying to solve? I though the basis for this was the healthcare crisis----you know, the spiraling cost of healthcare as a % of GDP!?!?!

If they weren't solving this problem, then this is the biggest lie yet!!!!!

That was the premise behind the whole effort!!!

Posted by: FastEddieO007 | September 12, 2010 9:16 PM | Report abuse

I'm very late to this discussion, but to calculate the real rise in health care costs to the average consumer you need to compare the rise in health care costs to the rise in salaries and wages. Right now, the Employment Cost Index increased in June by 0.4 percent, seasonally adjusted. We're looking at literally no wage inflation. Estimates place the increase in health care costs at 9 percent for 2010. Now, you might say that workers should then be experiencing an increase in benefits compensation as employers pick up the costs. Well, not really. Benefit compensation has only increased 0.6 percent in June.

I know you recognize the problem. Even if the health care bill bent the cost curve in the long-run, we're never going to get to the long-run. At current growth rates the system will fall apart well before we test whether costs bend down to 6% in 2018.

Posted by: besmit02 | September 13, 2010 11:25 AM | Report abuse

It is important to have the cost curve bend over the next 10 years. That can be done if there are controls over the costs of doctors, hospitals and medical devices and if much of the waste and fraud under Medicare and Medicare can be eliminated. The Dartmouth studies and other data tell us that there are huge regional differences in the cost of health care. There are tons of savings in store for us in the next 10 years. We have no choice, health care costs are killing our economy. Most folks who are employed think that paying $350 per month per family is high. What they seem to not know is that the average cost to the employer/employee is about three times that amount. We need to reduce the costs of health care in our country, as we improve the favorable outcomes and reduce the inefficiences in the system. It will be done! Health care reform is the way to go!

Posted by: crossingsg | September 13, 2010 8:58 PM | Report abuse

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