Thursday, September 16, 2010

Guest Commentary: Interpreting Healthcare Budget Projections

Joe Couto, PharmD, MBA
Outcomes Research Fellowship Director
Jefferson School of Population Health

Last week, media outlets were abuzz from a Health Affairs article that was published online that showed a slight increase in the growth of US aggregate health spending (0.2%) compared to an analysis published in March’s issue prior to the passage of reform. Yearly, this report is authored by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) and published in the journal with little fanfare.

However, in light of the controversy surrounding healthcare reform and mid-term elections, this report was touted by political pundits as yet more proof that healthcare reform is already a failed experiment. Their contention is that, contrary to the claim in March 2010 by the nonpartisan Congressional Budget Office (CBO) that the legislation would result in a net budgetary savings of $143 billion over the period 2010-2019, the legislation will instead grow healthcare costs over this period. While there is a bit of truth to their claim, a lot of facts have been left out of their reporting.

First, these projections have been made by different agencies, with CMS the source of the Health Affairs article, and the CBO the source of the figure often quoted by the Obama administration. Therefore variation is to be expected.

Second, the two figures are not directly comparable. The CBO’s figure is merely based on what the government will pay for healthcare over the next 10 years, most notably Medicare and Medicaid. The CMS figure of national health spending growth includes both public and private payers, and actually projects no increase in the growth of government spending on healthcare under the new health reform law. Thus the 0.2% increase in national health spending is attributed to growth in spending on the private payer side of the equation. This is explicitly demonstrated in the tables published in the Health Affairs article.

It is also important to note that in late August 2010 the Director of the CBO, Douglas Elmendorf, stated in a letter to Sen. Crapo (R-Idaho) that he has no reason to believe that his agencies’ projections from March would differ substantially 5 months later.

Third, it is important to realize that budget predictions are historically inaccurate and subject to sizeable variation. In 2002, CMS projected US aggregate health spending to grow at a rate of 6.7% in years 2009 – 2011. In 2008, growth was projected to be 6.6% and 6.7% during this period. The current CMS projections estimate spending to grow at rates of 5.8% (2009), 5.1% (2010), and 4.2% (2011). Thus a change of 0.2% would seem relatively insignificant in light of the variation seen over time in these projections. The authors of the latest Health Affairs article recognize that “many facets of these projections could change dramatically” over time.

Finally, the primary goal of health reform legislation was not to control cost, but to expand coverage. While it starts to create a more efficient system where costs can theoretically be controlled over time, the legislation does not contain many provisions whose sole focus is to control or contain costs.

What escaped the majority of authors of the editorials that appeared in the lay press last week is that the Health Affairs article underscored the fact that this legislation will cover an additional 32.5 million Americans by 2019 (9.7% of the US population in 2019), with little projected impact on health spending growth over the next 10 years. No matter what side of the political fence you sit on, this is truly extraordinary.