Actuarial Projections and the ACA: The Good News Story You Never Heard

September 13, 2010

This week, the esteemed journal Health Affairs published the latest findings from the office of the Chief Actuary of the Centers for Medicare and Medicaid Services (CMS), with new estimates on the cost impact of the Affordable Care Act (ACA).

CMS actuaries are now projecting that annual growth in health spending for 2010-2019 will be 0.2 percent higher than projections before the ACA was passed, and the health care share of the GDP in 2019 will be 0.3 percent higher than what would have been likely without the law. This article triggered extensive press coverage.

Depending on your perspective, press coverage either proved the ACA wasn’t going to do enough, or that the ACA wasn’t going to make things worse. And not surprisingly, since we are in the political season, those opposed to the ACA jumped on the numbers and supporters of the ACA were characterized as “beleaguered” by the latest “bad” report on health care reform.

Neither angle on this study gave any sense that there might be some positive news about the ACA in the report from the actuaries. In contrast, I see a very different story line in this study than told by any of the news reports.

To understand the full import of the report by the CMS actuaries, it is very important to understand the health care spending trends in different chunks of time. That is, the actuaries took into account several major pre-2014 legislative changes to come up with their projected cost trends. While the pre-2014 trends are somewhat influenced by the ACA (namely the implementation of the high risk pools and the extension of dependent coverage to those up to age 26), two other major legislative changes unrelated to the ACA are also affecting cost trends: changes made to the physician Sustainable Growth Formula and the extension of COBRA coverage subsidies through 2010. From 2014 to 2019, a considerable portion of the increase in spending has to do with major coverage expansions that start in 2014. Then, starting in 2018, one of the biggest changes relating to health care spending in the law takes effect: the excise tax on high cost health plans. The actual words in the Health Affairs article are important:

“For 2015–19, national health spending is now projected to increase 6.7 percent per year, on average—slightly less than the 6.8 percent average annual growth rate projected in February 2010. However, the year-by-year pattern of growth is anticipated to be different …. Enrollment shifts associated with the Affordable Care Act coverage expansions are projected to continue, contributing to continuing relatively faster spending growth rates through 2016. Thereafter, spending growth is projected to decelerate more substantially as a result of Affordable Care Act–mandated reductions to Medicare provider payment updates and the excise tax on high-cost insurance plans starting in 2018.” (Page 4)

In other words, the growth in national spending from 2014-2019 was expected and is principally because more people will be getting coverage. And in case we have forgotten, reducing the number of uninsured is a good thing – it should be seen as a positive accomplishment of the ACA. The fact that the numbers of the uninsured can be reduced to such a significant degree and have only a marginal impact on cost trends is actually quite remarkable. Post 2018, if the policies hold as currently envisioned in the ACA, actuaries are predicting substantial decelerations in health care spending as a result of the ACA. That is also a very positive statement about the ACA. None of these messages came through in the press reports on this study. But, these are important facts to understand and if we are going to make informed policy, it is essential to truly understand the details in this study.

So – hello! Calling all proponents of the ACA: Politics got you down? How about going for the facts?