Topics: Barack Obama

CMS projections show Obamacare will grow the government, boost health care spending

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Beltway Confidential,Philip Klein,Barack Obama,Health Care,Medicare and Medicaid,Entitlements

“If we fail to act, one out of every five dollars we earn will be spent on health care within a decade,” President Obama warned in a June 2009 speech to the American Medical Association.

Washington did act, and four years later, as Obama and his allies are not shy about reminding us, his health care legislation is still the law of the land. But on Wednesday, the Centers of Medicare and Medicaid Services released its latest projections on national health expenditures, finding that by 2022, health spending will rise to 19.9 percent of gross domestic product - or almost exactly one out of five dollars.

One of Obama’s early pitches for his health care proposal was that it was supposed to bend the cost curve down, but according to CMS estimates, the law will boost health spending by $621 billion over the next decade compared to what it otherwise would have been.

It’s true that in percentage terms, this only amounts to a difference of 0.1 percent. But again, the stated purpose of the health care law was to lower costs relative to a status quo Obama repeatedly referred to as “unsustainable” in that same AMA speech – not to make costs only slightly more unsustainable.

Another argument that could be made is that health care inflation has slowed in recent years, growing just 3.9 percent annually from 2010 to 2012. Some liberals have attempted to attribute this change to the health care law. As Paul Krugman wrote in a recent column decrying the lack of serious policy wonks on the right, “There has been a striking slowdown in overall health costs since the Affordable Care Act was enacted, with many experts giving the law at least partial credit.”

But CMS actuaries, explaining their findings in Health Affairs, are assuming that the slowdown in the economy is the likely explanation.

“Continued slower health spending growth after the recent economic downturn … has raised the question of whether a more fundamental change is occurring in the health sector,” CMS actuaries wrote. “However, econometric and actuarial analysis by the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary of the past fifty years of National Health Expenditure Accounts data, which explores the relationship between economic and health spending growth, suggests that health spending growth is likely to accelerate once economic conditions improve significantly.”

In 2014, CMS estimates that health inflation will spike by 6.1 percent, “reflecting the expanded coverage that will become available through the Affordable Care Act.”

Also in his 2009 AMA speech, Obama dismissed the idea that his plan would result in a government takeover of health care. But the real issue wasn’t that his health care law would suddenly make the system into a fully socialized Canadian single-payer organization. It was that it would move the U.S. into a more government-controlled direction.

As the chart below shows, over the course of the next decade, the share of spending deemed “private” will fall as the government share increases, nearly reaching parity at the end of the projection period. By 2022, government spending will represent $2.448 trillion of the $5.008 trillion in overall national health spending.

I put “private,” in quotes, however, because the CMS definition understates the true extent of government involvement in the health care sector. It counts the payroll taxes and premiums paid to help finance Medicare as private spending, even though private individuals are paying into a government program. It also counts individual spending on plans purchased through the Obamacare exchanges as private, even though the plans would be designed by the government and purchased on government-run exchanges.

It’s also worth keeping in mind that these estimates assume that Obamacare’s cuts to Medicare remain intact over the next decade.



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