September 9, 2010 / 7:09 AM / 9 years ago

Health reforms trigger spending shift

WASHINGTON (Reuters) - New U.S. reforms are poised to dramatically shift the nation’s healthcare spending, not only curbing Medicare costs but also pumping more money toward the private sector as roughly 32 million people gain coverage.

A pharmacy employee looks for medication as she works to fill a prescription while working at a pharmacy in New York December 23, 2009. REUTERS/Lucas Jackson

Although the law has little impact on overall healthcare spending, government researchers said they expect sharp changes in the U.S. healthcare sector as the bulk of the recently passed law starts taking effect in 2014.

The survey, conducted by Centers for Medicare and Medicaid Services (CMS) auditors and released on Thursday, is likely to fuel the debate over whether the reform law truly reins in healthcare spending, now already more than one-sixth of the nation’s economy.

“The overall net impact is moderate,” said Andrea Sisko, a CMS actuary who helped analyze the data. “But when you peel back the onion and you start looking underneath the surface, you start to see a much more pronounced impact on payers.”

The analysis comes just weeks ahead of U.S. elections seen largely as a referendum on Democrats, who control both the White House and Congress. Reforming the nation’s healthcare system was a top domestic priority for the Obama administration, but Republicans have vowed to repeal the law or cut funding if they win enough congressional seats.

Separately, another study obtained by Reuters on Thursday found most U.S. adults are still confused about when to expect health care changes.

CMS’ study, published in the journal Health Affairs, updates the agency’s earlier analysis from February, this time taking into account final details in the healthcare reform law passed in late March. Researchers analyzed the impact of the reforms using modeling to project people’s behavior on coverage and spending.

Factors contributing to lower costs include reduced payments for most Medicare services and doctor visits as well as cuts to private Medicare Advantage insurance plans, although a provision to cover more of Medicare patients’ drugs will increase spending.

Additionally, millions of people are expected to gain health insurance. By 2019, nearly 93 percent of the U.S. population should have coverage, researchers said. Now, more than 40 million people in the United States lack insurance, but that figure would drop by 32.5 million, the study found.


“There’s definitely going to be a larger demand for services in 2014,” said John Poisal, deputy director for CMS’s National Health Statistics Group that made the projections.

That year is when the bulk of the health reforms take effect, including a provision that requires Americans to buy health insurance or face fines.

Most uninsured will gain coverage through expanded joint federal-state Medicaid programs for the poor or on their own through state-based exchanges.

Nearly 16 million people will buy health insurance from private companies through the exchanges in 2014, growing to more than 30 million by 2019, the study showed. That would nearly double the amount of money spent on healthcare for such consumers while also helping to reduce prices, it said.

Provisions that set up immediate insurance coverage for high-risk patients and requirements to extend coverage to young adults up to age 26 are expected to cost $10.2 billion through 2013.

Out-of-pocket expenses are also expected to rise amid new excise taxes on high end, so-called Cadillac health insurance plans and employer cost shifting to workers, CMS found.

Despite the underlying shifts, however, U.S. healthcare costs will continue to rise considerably, reaching $4.6 trillion by 2019 from $2.6 trillion in 2010. That amounts to 19.6 percent of the nation’s Gross Domestic Product. Healthcare is already expected to reach 17.5 percent of GDP this year.

It is still unclear how people and businesses will react to the changes, and whether there are enough doctors and facilities to absorb any increased demand.

“It will take at least three years for the market to fully react to the coverage options,” the authors wrote.

Overseeing all the reforms also carries a hefty price tag.

Doing so is expected to cost U.S. states — which are charged with running new health insurance exchanges to help consumers shop for private coverage — some $37.7 billion through 2019.

At the federal level, administering the reforms will cost the Department of Health and Human Services an additional $2.4 billion.

Editing by Philip Barbara

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