Does the Health Care Bill Cost More Than We Thought?

Last week the Office of the Medicare Chief Actuary came out with their "Estimated Effects of the Patient Protection and Affordable Care Act," as amended by reconciliation. The document estimates the financial and coverage effects through FY 2019 of selected provisions of the recently passed health care reform bill. There has been some confusion regarding the Medicare Actuary's report and how it lines up next to Congressional Budget Office (CBO) estimates of the same bill, with many believing the Medicare Actuary projects greater costs than CBO. 

The confusion stems from the fact that CBO and the Medicare Actuary are actually measuring different things. Whereas CBO's bottom line number focuses on deficit impact ($143 billion in deficit reduction over the next decade), the Actuary looks at federal spending impact and also includes the "mandate" penalties. However, it excludes the tax increases used to finance the plan. Below is a true "apples to apples" comparison of the two estimates, which shows that they are indeed not all that different:

CBO (billions)
Actuary (billions)
Medicaid Expansion  $434  $410
Exchange Subsidies  $464  $507
Small Business Subsidies  $40  $31
Coverage Expansion  $938  $948
Employer Penalties  -$52  -$87
Individual Penalties  -$17  -$33
Interaction Effects  -$48  
Penalties  -$117  -$120
Medicare Advantage Cuts  -$132  -$145
Provider Payment Cuts  -$196  -$224
Premium Increases  -$36  -$16
IPAB (Medicare Commission)  -$13  -$24
DSH Payment Cuts  -$36  -$64
Other  -$79  -$67
Medicare/Medicaid Cuts  -$492  -$539
CLASS Act  -$70  -$38
Total  $259  $251

The reason CBO estimates the bill will reduce the deficit is that it includes a number of tax increases -- mainly higher payroll taxes, an excise tax on high-cost insurance, fees on certain medical industries, and reductions in some health care tax expenditures. These revenues more than offset the costs. However, the Actuary only looks into revenue provisions which directly effect the Medicare trust funds (and looks at them separately, so they are not included in the table above).

There is a second issue, which is that the Actuary projects the effect of the bill on overall national health expenditures. Here, they find that total health spending -- both private and public -- would be $311 billion higher over ten years as a result of this bill. At the same time, though, these additional costs appear to be declining over time. One way to think about it is that the bill would shift the curve up, but then bend it down.

That said, both CBO and the Actuary do warn that some of the cost cutting provisions -- particularly those which slow the growth of provider payments -- may be unsustainable. But that's another story for another blog.