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CMS Report and Cost Controls

This weekend, as commissioned by House Republicans, the Centers for Medicaid and Medicare Services (CMS) released their report on HR 3962. In a nutshell, the CMS finds that by 2019 the bill will expand insurance coverage to 34 million more Americans, while raising national health expenditure by 1% more than would otherwise be spent. This is somewhat predictable, as including more people into the system (i.e. getting insurance and care to the people that actually need it) will increase costs in the short term. This has been the case in Massachusetts, where the ‘Phase I’ of coverage expansion has been achieved and the state is now focusing on ‘Phase II’ cost-containment measures. Criticism will emerge from both sides of the aisle, though, as the report indicates the bill does not go far enough in cost control (at least in the short term).

The CMS focuses on the proposed cuts/savings in the Medicare and Medicaid programs, citing concern over the ‘payment update reductions’ to providers. Though the payment reductions may reduce the number of Medicare-accepting providers (a bad thing), CMS also recognizes that it provides incentive to maximize efficiency (a good thing).

The New York Times had an interesting piece today on increasing drug prices, which conveniently correlates with the cost-control problem above as prescription drugs make up a large portion of Medicare spending. The graph below represents the increase in prices compared to inflation, and I couldn’t help but be reminded of similar trends in insurance coverage premium increases.

Reform contains numerous provisions to limit insurance premium increases (capping annual increases at 150% of medical inflation, increasing medical loss ratios, limiting rating variation), and it may be beneficial to put similar limits on other industry price increases. The Senate and Conference Committee may find regulation like those found on the insurance industry useful if cost-containment, particularly in Medicare, doesn’t go far enough.

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