I am stunned by the implication that the cost estimates for the current legislation are somehow overestimated, based on the recent CMS report that health spending slowed slightly during the worst economic period since the Great Depression. Stuart Butler was right to mention a recent piece by James Capretta in which he runs through many of the reasons that the estimate is way too low, but they are worth reviewing again.

Pretending the $200+ billion “doc fix” will not happen. Pretending Medicare can make cuts through “efficiencies” ad infinite without disrupting the program or cost-shifting to the private sector. Using 10 years of taxes to pay for 6 years of program. Even the Congressional Budget Office and the CMS Chief Actuary have said, they doubt the bills’ savings will materialize. All the evidence points not to the cost estimate being too high, but being laughably low.

We would also do well to review the government’s dismal track record of projecting costs for health care programs – they always guess way too low (except for the Part D program, which is built on private market competition):

Not only would it be unwise to relax because of the recent slower growth numbers, but there are many reasons to expect the health bill, if passed, will trigger a surge in future health spending. In part that's because key expected savings are illusory and also because there are pent-up pressures in the bill that will increase health spending.

Former OMB official James Capretta has recently indicated some of these problems. For one thing the idea that Medicare fees will actually be cut 20% and held down is politically delusional. For another, the vastly different subsidies for many equivalent families inside and outside the exchanges will fuel pressure down the road to increase subsidies for ESI coverage, leading to more spending.

So this is not the time to celebrate. This is just a period of calm before the tsunami.

The recent report from the Centers for Medicare and Medicaid Services that health spending in 2008 grew at the slowest pace in nearly 50 years is reassuring news for the millions of American families and businesses that have struggled with explosive growth in insurance premiums, as well as for state and local governments that have been forced to absorb enormous increases in health care costs. Despite this slowdown, U.S. health care spending per person is still much more than that in other major industrialized countries, with costs projected to continue to rise rapidly over the next decade. We simply cannot continue on our current course.

There are several likely explanations for the decline in spending growth in 2008. First, some of the slowdown may be in anticipation of the Obama Administration's health reform initiatives. A similar effect was seen in the early 1990s, when reforms were advanced by President Clinton: when change is coming, uncertainty can lead to caution and conservative business practices.

Second, as federal officials have noted, the weak economy probably fueled a reduction in health spending growth. According to the Bureau of Economic Affairs, the economy grew at just 0.4 percentage points in 2008. It is likely that the unprecedented recession led to cutbacks in elective care. In some cases, patients may have questioned the need for additional prescriptions, numerous tests, and referral to specialists.

The most significant implications of the new numbers are that the federal budget costs of the health proposals now pending in Congress are overestimated -- starting from a higher baseline than now appears to be the case. However, while any slowdown in spending growth is reason for cautious optimism, fundamental changes to the health care system will be needed to alter the long-term outlook for health care cost growth and protect the country from future increases. It is time to usher in a new era in health care with greater emphasis on cost control, efficiency, and avoidance of overutilization and waste. Congress has fashioned health reform plans that will do just that.

The latest national health expenditure data demonstrate why health care reform needs to include a long-term strategy to bend the cost curve. Although the recession has brought a reduction in the rate of increase in health care costs, costs continue to grow faster than the overall economy, further straining family budgets and crowding out other urgent domestic priorities, such as education, energy, and the environment.

According to CMS, “these developments reflect the general pattern that larger increases in the health spending share of GDP generally occur during or just after periods of economic recession.” This is consistent with national data and information received from health plans showing that health care costs are expected to increase even further in 2009 due to the underlying growth in the cost of health care services. Specifically, our plans are reporting sharp increases in hospital and physician rate requests; increases in outpatient surgery costs; increased billing for more services provided per emergency room visit; increases in the use and cost of specialty drugs; and increased cost-shifting as providers seek to offset the costs of treating more Medicaid patients during this economic downturn.

Unfortunately, the focus throughout the health care reform debate has been almost exclusively on the cost of health care coverage even though the data are clear that increases in premiums are driven by underlying medical costs, not health plan administrative costs. In fact, the latest national health expenditure data revealed that “the net cost of this insurance continued its recent decline as a share of total premiums from 13.7 percent in 2003 to 11.7 percent in 2008.”

While the current legislation makes important improvements in access and takes steps towards cost-containment, it lacks accountability to ensure that costs are brought under control. Moreover, the bill includes provisions that will increase costs for families and small businesses and disrupt the quality coverage on which millions of Americans rely today.

There is still an opportunity to address system-wide cost containment in the pending legislation to ensure that individuals and small businesses are not faced with increases in health care costs that outpace their ability to absorb them. Taking on this challenge – although difficult politically – will ensure that needed health reform will result in care and coverage that are affordable over the long term. Not taking on this challenge will ensure that budgeted subsidy levels will not be sufficient to keep pace with rising health care costs and that costs will continue to increase faster than the economy can sustain.