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CMS Analysts: Health Cost Relief Only Temporary

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Health care cost spending growth has slowed in recent years but probably will speed up soon, government experts said Tuesday.

Actuaries and economists in the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS) are predicting that health care spending will increase about 4% for the next couple of years.

Spending could then jump about 7% in 2014, when coverage expansion programs created by the Patient Protection and Affordable Care Act of 2010 (PPACA) are supposed to start, the CMS analysts said in a paper published in Health Affairs, a health finance academic journal.

The analysts expect the United States to spend about $8,953 per resident on health care this year, or 18% of the country’s gross domestic product (GDP).

The net cost of health insurance — the gap between what customers pay for private health insurance and the amount private insurers spend on health care — increased just 4.3% in 2011, to $152 billion. The net cost of health insurance could increase about 6.8% this year, the analysts said.

The amount that private health insurers spent on health care increased just 1.8% in 2011, to $864 billion, while overall spending increased 3.9%. This year, the overall rate of spending growth could rise to 4.2%, with the rate of private health insurance spending growth climbing to 2.8%, the analysts said.

A year ago, the analysts were predicting health insurers would spend about $850 billion on health care in 2011.

In 2014, when PPACA takes full effect, private health insurance premium revenue could grow 7.1% as uninsured consumers use new subsidies to buy health insurance and insured consumers use the subsidies to buy more generous coverage, the analysts said.

“For 2015–21, growth in private health insurance premiums is expected to slow somewhat and to average 5.9% annually,” the analysts said. “Underlying this projection is the likelihood that some employers of low-wage workers will stop offering health insurance; as a result, many of their employees are expected to move to the exchange plans.”

PPACA is supposed to impose an excise tax on high-cost “Cadillac plans” in 2018.

“This tax is expected to place further downward pressure on health insurance premium growth,” the analysts said.

In March 2008, before PPACA was enacted and before the weakness of the economy became fully apparent, the analysts were predicting overall national health expenditures would increase an average of 6.7% from 2007 to 2017.

In October 2006, the analysts were warning that growth in the rate of expenditure increase might not slow below 6% until 2017.

Ricardo Alonso-Zaldivar of the Associated Press contributed information to this report.


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