The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary recently released its updates to the document, National Health Spending Projections: The Estimated Impact of Reform Through 2019. The revised report appears in the December 2011 edition of Health Affairs (subscription only). The update includes health care cost and utilization data and the preliminary estimates of the impact of the Patient Protection and Affordable Care Act (PPACA).
The Good News
National health care costs continued to increase at lower than historic rates, rising by only 3.9% in 2010, according to the report. The rate of medical inflation for 2010 was only 0.1% higher than for 2009. In their newest set of predictions, the Office of the Actuary has lowered its expectation of the medical inflation rate for 2011, now predicting the rate will increase only 4.2%. This revised medical inflation rate more closely mirrors the current overall inflation rate of 3% for 2011, as released by the U.S. Bureau of Labor Statistics. Further, this projection is more consistent with the most recent interim Bureau of Labor data, calculated through December 2011, which indicates a medical inflation rate of 3.5%.
To put this information into perspective, consider the effect higher medical inflation has had on the resources of health insurance purchasers. According to David I. Auerbach and Arthur L. Kellermann of the Rand Corp (September 2011 edition of Health Affairs), for a family of four that obtains their health insurance through an employer-sponsored health plan, a decade of medical inflation has wiped out any increase in real earnings. If the medical inflation rate had approximated the overall inflation rate for the last ten years, the family of four described above would have enjoyed an average increase in real income of approximately $5,400 per year. This increase in real earnings would have mitigated much of the urgency for health insurance reform and would negate much of the current debate about income inequality in our nation.
The Bad News
Although current trends are encouraging, predictions for future medical cost increases are not as reassuring. The Office of the Actuary report anticipates that the moderation in national health care spending is not sustainable and attributes part of the decrease in its near-term projected medical inflation rate to the current economic recession. It anticipates the economy will be more robust by 2014 and that PPACA will significantly increase the growth in national health spending when most of its provisions are implemented. The report states:
“The major Affordable Care Act health insurance expansions are set to occur in 2014. They are anticipated to bring about substantial increases in health care coverage. Medicaid coverage will be expanded to all people under age sixty-five in households with incomes up to 138 percent of the federal poverty level. State-level health insurance exchanges will be established to facilitate a new individual and small-group insurance marketplace. Largely as a result of these coverage expansions, growth in national health spending is projected to be 9.2 percent in 2014, versus growth of 6.6 percent in 2014 that was expected prior to the enactment of health reform legislation.”
The bottom line indicates that we as a nation have a narrow window to adopt policies that will help moderate the increasing cost of health care and soften the impact future costs will have on our clients. Our goal should be to avoid another decade of flat real earnings due to the ever-escalating cost of health care in this country. Brokers can play a meaningful role in helping employers, their employees and others make informed decisions about which health insurance options are the best value.
As always, BenefitMall pledges to keep you up to date on these issues and more. Stay tuned to www.benefitmall.com and www.HealthcareExchange.com.
The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.