The Impact of Health Reform

Estimates and projections of the costs of a new health program are often way off the mark.  Two major expansions of Medicare had opposite impacts. The ESRD benefit which was added to Medicare in 1972 has resulted in significantly higher costs than originally estimated while the Medicare Part D program ended up costing about 40 percent less than originally projected.  

We are now starting to see the impact of several new programs added by the ACA.  A recent IRS study found that fewer small employers took advantage of a new tax credit with the result that costs to date are approximately one-fourth of the CBO estimate.  Similarly, expenditures for the pre-existing condition insurance plan have been less than expected due to the low take up rate.  On the other hand, thousands of employers have benefited from the subsidies under the Early Retiree Reinsurance program and the funds are expected bo be exhausted before 2014 and millions of children have been insured by the provisions to extend coverage to young adults. 

Several articles in the November issue of Health Affairs have taken a second look at projections for expanded coverage under Medicaid and the health exchanges which will start in 2014. In an article reviewing the estimate of 16 million new Medicaid recipients by faculty from Harvard, the title says it all: “Policy Makers Should Prepare for Major Uncertainties in Medicaid Enrollment, Costs and Needs for Physicians Under Health Reform”. Authors Benjamin Sommers, Katherine Swartz and Arnold Epstein estimate that there will be 13 million new enrollees with a range of 8.5 — 22.4 million new enrollees and that costs could range from $34 – $98 billion per year.  Discussion at a conference to roll out the new Health Affairs issue concluded that the take up rate could vary dramatically by state, for example take up could be discouraged in states with budgetary woes through limited marketing or could be high in states that have historically had aggressive outreach programs to expand Medicaid eligibility.

At the same conference John Shiels from Lewin discussed his article “Without the Individual Mandate, The Affordable Care Act Would Still Cover 23 Million; Premiums Would Rise Less Than Predicted”.  The article concludes that if the individual mandate is overturned, there will be no death spiral since the government subsidies are so generous that they will not deter large numbers of individuals from signing up.  The authors estimate that premiums will increase 12.6% if fewer young and healthy individuals sign up. While the government would have to pay more for the costs of the newly insured who qualify for subsidies, overall costs to the government will be lower since fewer people will qualify for subsidies and there will be fewer Medicaid enrollees.

 It will be interesting to see how it all turns out.