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Feds: Health Spending Growth Low in 2010



Major Finding: The nation’s health spending rose by 3.9% in 2010 to $2.6 trillion. It is projected to rise by about 6% each year over the next decade, with the exception of an 8% increase in 2014, when the Affordable Care Act is in full effect.

Data Source: An actuarial and econometric analysis of data from the 2011 Medicare Trustees Report, done under a current-law framework.

Disclosures: The authors are all employees of the Centers for Medicare and Medicaid Services.

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WASHINGTON – Despite a huge increase in the number of Americans who will have insurance coverage when the main provisions of the Affordable Care Act take effect in 2014, the nation’s overall health spending in that year is projected to rise only 2% above the expected yearly average increase for the rest of the decade, economists from the Centers for Medicare and Medicaid Services said July 27.

The 8% growth in spending expected in 2014 is in line with the average 5.8% annual rise in health spending expected each year from 2010 to 2020 and is relatively small given that, by 2014, an estimated 23 million more Americans will have health insurance coverage under the Affordable Care Act (ACA), said Sean P. Keehan, an economist in the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS).

Over the next decade, the ACA is projected to add only a tenth of a percentage point to the nation’s overall health spending, Mr. Keehan and his colleagues reported in the journal Health Affairs (August [doi:10.1377/hlthaff.2011.0662]).

The ACA is expected to drive a 20% increase in Medicaid costs and a 9% increase in private insurance spending in 2014. The economists said that many of the newly insured Americans will be younger and healthier than are the existing populations covered by Medicaid and private insurance.

With the new coverage, they are likely to use more physician services (a projected 9% increase in 2014) and pharmaceuticals (a projected 11% increase in 2014), the authors said.

The increases in spending will not be offset by Medicare cuts in the first year, according to the report, an actuarial and econometric analysis of data from the 2011 Medicare Trustees Report, done under a current-law framework.

The projections could be substantially affected by the outcome of the ongoing federal debt ceiling talks and, in a few years, by any potential changes in the Medicare Sustainable Growth Rate (SGR) formula.

In 2012, the SGR calls for an-almost 30% cut in Medicare physician payments. If that happens, Medicare spending would only grow by 1.7%, instead of by 5.9%, according to the study. If the Congress decides to try an alternative, such as tying fee increases to the Medicare Economic Index, Medicare spending would rise by 6.6%.

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