CMS Actuary Finds ObamaCare Bends Cost Curve Up

The chief actuary for the Centers for Medicare and Medicaid Services, a division of the Department of Health and Human Services, has released a report showing that the new national health care law will increase health care spending in the United States beyond already unsustainable levels.

During the health care debate, President Obama argued that we couldn’t afford not to pass his brand of health care reform.

“Make no mistake: The cost of our health care is a threat to our economy,” Obama told the American Medical Association last June. “It’s an escalating burden on our families and businesses. It’s a ticking time bomb for the federal budget. And it is unsustainable for the United States of America.”

But for all the talk over the past year about “bending the cost curve down,” CMS, the agency that is tasked with tracking national health  care expenditures, has now projected that the new law will actually bend the cost curve in the opposite direction. That is, up.

Not surprisingly, CMS notes that, “Numerous studies have demonstrated that individuals and families with health insurance use more health services than otherwise-similar persons without insurance.” Thus, expanding coverage will mean greater usage of health care services.

In that same AMA speech, Obama said more specifically, “If we fail to act, one out of every five dollars we earn will be spent on health care within a decade.”

But according to CMS, after the passage of ObamaCare, health care spending will eat more than one out of five dollars in the economy. Specifically, by 2019, health care spending is now projected to represent 21 percent of GDP, as opposed to an estimated 20.8 percent had the new law not passed. In dollar terms, that translates into $311 billion more in spending over the next decade. I’ve created the graph below to demonstrate this.

Liberals could respond to this report by arguing that covering 34 million additional people — as CMS projects — justifies an increase in spending that is modest relative to the more than $35 trillion we’re projected to spend on health care over the next decade. But as demonstrated by Obama’s statements above, of which I could have found numerous others, the law was sold to the American people on the basis of the fact that it would substantially reduce costs that were crippling our economy.

In the rest of the 38-page report, actuary Richard Foster confirms many of the arguments conservatives have been making throughout the health care process. For instance:

By delaying the major spending provisions until 2014, Democrats hid the true 10-year cost of their legislation: “Because of these 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.

Medicare cuts are unlikely to materialize: 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.

You can’t double count the Medicare savings: 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.”

The CLASS Act is a ponzi scheme: 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. 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.”

The report goes on to say that the CLASS program is likely to be used by those with more health problems, meaning it faces “a significant risk of failure as a result of adverse selection of participants.”