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Health costs: They'll spike, then slow down

By Parija Kavilanz, senior writer


NEW YORK (CNNMoney.com) -- It will be at least five years before health care reform triggers a sustained slowdown in the pace of spending, according to new government estimates released on Thursday.

Updated projections, now factoring in the historic law enacted in March, show that the country's long-term health spending will slow down slightly from 2015 through 2019 after accelerating from 2010 to 2014 because of the law's consumer-friendly provisions.

Overall, the government raised its health spending projections 0.2 percentage points from the 6.1% per year jump it had previously estimated for 2009 to 2019. Total health care costs are expected to reach $4.6 trillion in 2019.

"Our spending on health care will increase as a result of health reform. However, this increase is very small in relation to the expansion of coverage under reform," said Paul Ginsberg, a health policy expert and president of nonpartisan group Center for Health System Change.

"Let's not forget that 33 million more people are switching from uninsured to insured status," he said. "Given this size, the new projections show a modest gain in spending."

Cost of insuring the uninsured: Health spending growth this year will be 5.1 percentage points faster than the agency's February forecast of a 3.9% increase, according to the Center of Medicare and Medicaid Services' actuaries.

New provisions mandated by reform such as one that expands coverage to adult dependents until age 26, will boost spending by $10.2 billion from 2010 through 2014, as more uninsured people gain access to insurance and health care.

When costs will spike: The biggest spike in spending will occur in 2014. That's when the new provisions that target expansion of coverage, such as the creation of health insurance exchanges catering to uninsured individuals and small businesses, come into effect.

Health care spending in 2014 is estimated to spike 9.2%, up sharply from CMS' earlier forecast for a 6.6% increase.

"The larger [cost] impact of reform is felt in [2010 -2014] as about 20 million more people get insurance coverage resulting in faster growth in Medicare and private insurance spending," said Steve Heffler, director of the CMS Office of Actuary.

"This is the transition effect when you move people from being uninsured to insured," he said.

When spending will slow: After 2014, Heffler said, other provisions in the law will kick in to offset the accelerated spending pace.

"In terms of bending the cost curve, that will start to happen in the last five years," Heffler said.

For 2015 through 2019, spending will grow more slowly to 6.7% a year, slightly less than an earlier forecast of a 6.8% annual increase. Heffler said reductions in payments to Medicare providers and an excise tax on expensive plans that goes into effect in 2018 will cause spending to slow down.

The report said many employers will lower the value of their plans in 2018 to avoid the tax on high-cost insurance plans.

Ginsberg flagged the 2018 excise tax provision as the most significant factor to slow the cost increases.

"But the report only factors in two years worth of impact [in health spending] from the tax," he said. The cost savings from the tax could extend beyond 2019.

Although the agency's projections only go through 2019, Heffler said savings could go beyond that timeframe after other measures designed to contain costs are developed such as the CMS innovation center and changes in payment systems.

"The hope is that these measures will also slow down the rate of growth." To top of page

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