Shifts in Employer Coverage Will Lead to Higher Health Care Spending

September 9, 2010 ( – A survey conducted by the Centers for Medicare and Medicaid Services (CMS) auditors finds the net impacts of key Affordable Care Act and other legislative provisions on total national health expenditures are moderate, but the underlying effects on payer spending levels and growth rates are much more pronounced.

According to the CMS report published in the Journal Health Affairs enrollment in private health insurance plans through the Affordable Care Act’s exchanges is projected to increase from an initial 15.8 million enrollees in 2014 to 30.6 million by 2019. A very slight net decline in employer-sponsored coverage of roughly 100,000 is projected by 2019 because the number of people projected to shift from employer-sponsored insurance coverage to Medicaid or exchange coverage is slightly larger than the number that is anticipated to newly take up employer-sponsored coverage as a result of the individual mandate and employer-offered incentives.  

The CMS assumes it will take at least three years for the market to fully react to the new coverage options. For 2015 and 2016, as additional people continue to enroll in Medicaid or purchase private coverage through exchanges, it is projected that out-of-pocket spending will grow 1.7 percentage points more slowly than previously projected, but by 2018, CMS projects out-of-pocket spending growth of 9.6% – mainly attributable to the excise tax on high-cost employer-sponsored plans, which is expected to result in greater cost sharing as many affected employers scale back coverage to minimize their tax exposure.  

Immediate reforms, including the implementation of the Pre-Existing Condition Insurance Plan, or high-risk insurance pools for those with health conditions that make it difficult to acquire affordable individually purchased coverage, and the provision for coverage of dependents under age 26 are estimated to increase national health spending by $10.2 billion through 2013.  

Between 2014 and 2019, private health insurance spending growth is projected to average 6.6% per year, partly because exchange enrollment is expected to continue to increase and partly because it is expected that many affected employers will lower the value of employer-sponsored plans in 2018 in order to minimize exposure to the Affordable Care Act–mandated excise tax on high-cost insurance plans.

The report noted that the major Affordable Care Act health insurance expansions are set to occur in 2014, and are anticipated to bring about substantial increases in health care coverage. As a result, growth in national health spending is projected to be 9.2% in 2014, versus growth of 6.6% in 2014 that CMS previously projected. CMS said it expects that the level of health care spending for the formerly uninsured will nearly double as a result of their gaining coverage through exchange plans.  

By 2019, the insured share of the population is projected to be 92.7%, and the number of uninsured people is estimated to be reduced by 32.5 million, and more than half of the newly insured are expected to gain coverage through Medicaid.  

After implementation of the Affordable Care Act, the health care share of gross domestic product (GDP) is projected to be 19.6% in 2019.   

Overall, private health insurance spending is anticipated to account for about 32% of national health expenditures in 2019 after the effects of the Affordable Care Act, compared to approximately 30% prior to reform.  

The report said new U.S. Department of Health and Human Services (HHS) functions will add $2.4 billion to federal administrative costs in the National Health Expenditures Accounts over the projection period.  For states, the initial exchange startup costs will be $4.4 billion for 2011–2013. Exchange-related administrative costs would add a cumulative $37.7 billion, or roughly 0.2%, to national health spending through 2019.   

The CMS report is here.