A new study puts some reality into the cost of health care as a result of the “reform” legislation. As many of us have been saying, the CBO focuses only on the government’s budget, expenses and tax revenue and then only in the context of the exact words in the legislation. This results in “savings” for the government, but are they real, is the deficit really reduced?
The PPACA does little if anything to control health care costs but adds new mandated benefits and removes underwriting considerations plus by adding to the insured roles, especially Medicaid, it increases demand including among those who have little or no out of pocket costs. Combined, this is a prescription for ever growing health care costs possibly even beyond that which would have occurred absent the legislation. That is not going to make employers, unions, state and local governments or many individuals very happy. Blaming insurance company premiums is not the solution, but that will continue to be the thrust of political rhetoric.
The problem goes beyond what the PPACA does or does not do, even the assumptions contained within the legislation are questionable at best and likely will not deliver the promised savings or positive impact on the federal deficit.
A new report from the Chief Actuary for CMS provides some objective clarification on what is happening. Here is a sample of the findings:
Because of the transition effects and the fact that most of the coverage provisions would be in effect for only 6 of the 10 years of the budget period, the cost estimates shown in this memorandum do not represent a full 10-year cost for the new legislation, CMS says.
The CMS report cautions that “it is important to note that the estimated savings shown in this memorandum for one category of Medicare provisions may be unrealistic.” The reason is that if the proposed cuts to payments to hospitals, nursing facilities, and home health agencies go into effect, “roughly 15 percent of Part A providers would become unprofitable within the 10-year projection period…” The only way to resolve this problem would be to prevent the cuts, which in turn would eat up some of the projected savings from the legislation.
While in theory Medicare Part A cuts would extend solvency of the program by 12 years, the actuary writes, “In practice the improved (Medicare hospital insurance) financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”
One of the most under-reported aspects of the new health care legislation was that it creates a smaller new entitlement within the massive entitlement – a program pushed by Ted Kennedy that would allow individuals to purchase long-term care insurance through the government (The Class aCT). But the program begins collecting premiums before paying out benefits, making it produce surpluses in the early years that Democrats claimed as deficit savings. However, CMS notes that, “After 2015, as benefits are paid, the net savings from this program will decline; in 2025 and later, projected benefits exceed premium revenues, resulting in a net Federal costs in the longer term.”
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