Estimated Financial Effects of the “Patient Protection and Affordable

DEPARTMENT OF HEALTH & HUMAN SERVICES

Centers for Medicare & Medicaid Services

7500 Security Boulevard, Mail Stop N3-01-21

Baltimore, Maryland 21244-1850

Office of the Actuary

DATE: April 22, 2010

FROM: Richard S. Foster

Chief Actuary

SUBJECT: Estimated Financial Effects of the “Patient Protection and Affordable Care Act,”

as Amended

The Office of the Actuary has prepared this memorandum in our longstanding capacity as an independent

technical advisor to both the Administration and the Congress. The costs, savings, and coverage impacts

shown herein represent our best estimates for the Patient Protection and Affordable Care Act. We offer

this analysis in the hope that it will be of interest and value to policy makers and administrators as they

implement and monitor these far-reaching national health care reforms. The statements, estimates, and

other information provided in this memorandum are those of the Office of the Actuary and do not represent

an official position of the Department of Health & Human Services or the Administration.

This memorandum summarizes the Office of the Actuary’s estimates of the financial and

coverage effects through fiscal year 2019 of selected provisions of the “Patient Protection and

Affordable Care Act” (P.L. 111-148) as enacted on March 23, 2010 and amended by the “Health

Care and Education Reconciliation Act of 2010” (P.L. 111-152) as enacted on March 30, 2010.

For convenience, the health reform legislation, including amendments, will be referred to in this

memorandum as the Patient Protection and Affordable Care Act, or PPACA.

Included are the estimated net Federal expenditures in support of expanded health insurance

coverage, the associated numbers of people by insured status, the changes in Medicare and

Medicaid expenditures and revenues, and the overall impact on total national health

expenditures. Except where noted, we have not estimated the impact of the various tax and fee

provisions or the impact on income and payroll taxes due to economic effects of the legislation.

Similarly, the impact on Federal administrative expenses is excluded. A summary of the data,

assumptions, and methodology underlying our national health reform estimates will be available

in a forthcoming memorandum by the OACT Health Reform Modeling Team.

Summary

The table shown on page 2 presents financial impacts of the selected PPACA provisions on the

Federal Budget in fiscal years 2010-2019. We have grouped the provisions of the legislation into

six major categories:

(i) Coverage provisions, which include the mandated coverage for health insurance, a

substantial expansion of Medicaid eligibility, and the additional funding for the Children’s

Health Insurance Program (CHIP);

(ii) Medicare provisions;

(iii) Medicaid and CHIP provisions other than the coverage expansion and CHIP funding;

(iv) Provisions aimed in part at changing the trend in health spending growth;

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(v) The Community Living Assistance Services and Supports (CLASS) program; and

(vi) Immediate health insurance reforms.

The estimated costs and savings shown in the table are based on the effective dates specified in the

law as enacted. Additionally, we assume that employers and individuals would take roughly 3 to

5 years to fully adapt to the new insurance coverage options and that the enrollment of additional

individuals under the Medicaid coverage expansion would be completed by the third year of

implementation. Because of these transition effects and the fact that most of the coverage

provisions would be in effect for only 6 of the 10 years of the budget period, the cost estimates

shown in this memorandum do not represent a full 10-year cost for the new legislation.

Estimated Federal Costs (+) or Savings (−) under Selected Provisions

of the Patient Protection and Affordable Care Act as Enacted and Amended

(in billions)

Fiscal Year

Total,

Provisions

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2010-19

Total*

$9.2

−$0.7

−$12.6

−$22.3

$16.8

$57.9

$63.1

$54.2

$47.2

$38.5

$251.3

Coverage†

3.3

4.6

4.9

5.2

82.9

119.2

138.2

146.6

157.6

165.8

828.2

Medicare

1.2

−4.7

−14.9

−26.3

−68.8

−60.3

−75.2

−92.1

−108.2

−125.7

−575.1

Medicaid/CHIP

−0.9

0.8

4.5

8.6

5.1

4.6

3.4

1.3

1.7

28.3

Cost trend‡

—

−0.0

−0.1

−0.2

−0.4

−0.6

−0.9

−2.3

CLASS program

—

−2.8

−4.5

−5.6

−5.9

−6.0

−4.3

−3.4

−2.8

−2.4

−37.8

Immediate reforms

5.6

3.2

1.2

—

10.0

* Excludes Title IX revenue provisions except for sections 9008 and 9015, certain provisions with limited impacts, and Federal

administrative costs.

† Includes expansion of Medicaid eligibility and additional funding for CHIP.

‡ Includes estimated non-Medicare Federal savings from provisions for comparative effectiveness research, prevention and

wellness, fraud and abuse, and administrative simplification. Excludes impacts of other provisions that would affect cost

growth rates, such as the productivity adjustments to Medicare payment rates (which are reflected in the Medicare line) and the

section 9001 excise tax on high-cost employer plans.

As indicated in the table above, the provisions in support of expanding health insurance coverage

(including the Medicaid eligibility changes and additional CHIP funding) are estimated to cost

$828 billion through fiscal year 2019. The Medicare, Medicaid, growth-trend, CLASS, and

immediate reform provisions are estimated to result in net savings of about $577 billion, leaving

a net overall cost for this period of $251 billion before consideration of additional Federal

administrative expenses and the increase in Federal revenues that would result from the excise

tax on high-cost employer-sponsored health insurance coverage and other revenue provisions.

(The additional Supplementary Medical Insurance revenues from fees on brand-name

prescription drugs under section 9008 of the PPACA, and the additional Hospital Insurance

payroll tax income under section 9015, are included in the estimated Medicare savings shown

here.) The Congressional Budget Office and the Joint Committee on Taxation have estimated

that the total net amount of Medicare savings and additional tax and other revenues would

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somewhat more than offset the cost of the national coverage provisions, resulting in an overall

reduction in the Federal deficit through 2019.

The following chart summarizes the estimated impacts of the PPACA on insurance coverage.

The mandated coverage provisions, which include new responsibilities for both individuals and

employers, and the creation of the American Health Benefit Exchanges (hereafter referred to as

the “Exchanges”), would lead to shifts across coverage types and a substantial overall reduction

in the number of uninsured, as many of these individuals become covered through their

employers, Medicaid, or the Exchanges.

Estimated Effect of the Patient Protection and Affordable Care Act,

as Enacted and Amended, on 2019 Enrollment by Insurance Coverage

(in millions)

60.5

63.5

165.9

25.7

56.9

60.5

83.9

164.5

41.6

23.1

100

120

140

160

180

Medicare Medicaid & CHIP Employer-sponsored

insurance

Individual coverage

(Exchange & other)

Uninsured

Prior Law PPACA

Note: Totals across categories are not meaningful due to overlaps among categories (e.g., Medicare and Medicaid).

By calendar year 2019, the mandates, coupled with the Medicaid expansion, would reduce the

number of uninsured from 57 million, as projected under prior law, to an estimated 23 million

under the PPACA. The additional 34 million people who would become insured by 2019 reflect

the net effect of several shifts. First, an estimated 18 million would gain primary Medicaid

coverage as a result of the expansion of eligibility to all legal resident adults under 133 percent

of the Federal Poverty Level (FPL).

(In addition, roughly 2 million people with employer-

The health reform legislation specifies an income threshold of 133 percent of the Federal Poverty Level but also

requires States to apply an “income disregard” of 5 percent of the FPL in meeting the income test. Consequently,

the effective income threshold is actually 138 percent of the FPL. For convenience, we refer to the statutory factor

of 133 percent in this memorandum.

This provision would extend eligibility to two significant groups: (i) individuals who would meet current Medicaid

eligibility requirements, for example as disabled adults, but who have incomes in excess of the existing State

thresholds but less than 133 percent of the FPL; and (ii) people who live in households with incomes below

133 percent of the FPL but who have no other qualifying factors that make them eligible for Medicaid under prior

law, such as being under age 18, age 65 or older, disabled, pregnant, or parents of eligible children.

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sponsored health insurance would enroll in Medicaid for supplemental coverage.) Another

16 million persons (most of whom are currently uninsured) would receive individual insurance

coverage through the newly created Exchanges, with the majority of these qualifying for Federal

premium and cost-sharing subsidies. Finally, we estimate that the number of individuals with

employer-sponsored health insurance would decrease overall by about 1 million, reflecting both

gains and losses in such coverage under the PPACA.

As described in more detail in a later section of this memorandum, we estimate that overall national

health expenditures under the health reform act would increase by a total of $311 billion (0.9 percent)

during calendar years 2010-2019, principally reflecting the net impact of (i) greater utilization of

health care services by individuals becoming newly covered (or having more complete coverage),

(ii) lower prices paid to health providers for the subset of those individuals who become covered by

Medicaid, (but with net Medicaid costs from provisions other than the coverage expansion), and

(iii) lower payments and payment updates for Medicare services. Although several provisions would

help to reduce health care cost growth, their impact would be more than offset through 2019 by the

higher health expenditures resulting from the coverage expansions.

The actual future impacts of the PPACA on health expenditures, insured status, individual

decisions, and employer behavior are very uncertain. The legislation would result in numerous

changes in the way that health care insurance is provided and paid for in the U.S., and the scope

and magnitude of these changes are such that few precedents exist for use in estimation.

Consequently, the estimates presented here are subject to a substantially greater degree of

uncertainty than is usually the case with more routine health care legislation.

The balance of this memorandum discusses these financial and coverage estimates—and their

limitations—in greater detail.

Effects of Coverage Provisions on Federal Expenditures and Health Insurance Coverage

Federal Expenditure Impacts

The estimated Federal costs of the coverage provisions in the PPACA are provided in table 1,

attached, for fiscal years 2010 through 2019. We estimate that Federal expenditures would

increase by a net total of $251 billion during this period as a result of the selected PPACA

provisions—a combination of $828 billion in net costs associated with coverage provisions, $575

billion in net savings for the Medicare provisions, a net cost of $28 billion for the

Medicaid/CHIP provisions (excluding the expansion of Medicaid eligibility and the additional

CHIP funding), $2 billion in savings from provisions intended to help reduce the rate of growth

in health spending, $38 billion in net savings from the CLASS program, and $10 billion in costs

for the immediate insurance reforms. These latter five impact categories are discussed in

subsequent sections of this memorandum.

Of the estimated $828 billion net increase in Federal expenditures related to the coverage

provisions of the PPACA, about one-half ($410 billion) can be attributed to expanding Medicaid

coverage for all adults who live in households with incomes below 133 percent of the FPL. This

cost reflects the fact that newly eligible persons would be covered with a Federal Medical

Assistance Percentage (FMAP) of over 99 percent for the first 3 years, declining to 93 percent by

the sixth year; that is, the Federal government would bear a significantly greater proportion of

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the cost of the newly eligible enrollees than is the case for current Medicaid beneficiaries.

Also

included in this cost is the additional funding for the CHIP program for 2014 and 2015, which

would increase such expenditures by an estimated $29 billion. The remaining costs of the

coverage provisions arise from the refundable tax credits and reduced cost-sharing requirements

for low-to-middle-income enrollees purchasing health insurance through the Exchanges

($507 billion) and credits for small employers who choose to offer insurance coverage

($31 billion). The increases in Federal expenditures would be partially offset by the penalties

paid by affected individuals who choose to remain uninsured and employers who opt not to offer

coverage; such penalties total $120 billion through fiscal year 2019, reflecting the relatively low

per-person penalty amounts specified in the legislation.

The refundable premium tax credits in section 1401 of the PPACA (as amended by section 1001

of the Reconciliation Act) would limit the premiums paid by individuals with incomes up to

400 percent of the FPL to a range of 2.0 to 9.5 percent of their income and would cost an

estimated $451 billion through 2019. An estimated 25 million Exchange enrollees (79 percent)

would receive these Federal premium subsidies. The cost-sharing credits would reimburse

individuals and families with incomes up to 400 percent of the FPL for a portion of the amounts

they pay out-of-pocket for health services, as specified in section 1402, as amended. These

credits are estimated to cost $55 billion through 2019.

The PPACA establishes the Exchange premium subsidies during 2014-2018 in such a way that

the reduced premiums payable by those with incomes below 400 percent of FPL would maintain

the same share of total premiums over time. As a result, the Federal premium subsidies for a

qualifying individual would grow at the same pace as per capita health care costs during this

period. Because the cost-sharing assistance is based on a percentage of health care costs incurred

by qualifying individuals and families, average Federal expenditures for this assistance would

also increase at the same rate as per capita health care costs. After 2018, if the Federal cost of

the premium and cost-sharing subsidies exceeded 0.504 percent of GDP, then the share of

Exchange health insurance premiums paid by enrollees below 400 percent of the FPL would

increase such that the Federal cost would stay at approximately 0.504 percent of GDP. We

estimate that the subsidy costs in 2018 would represent about 0.518 percent of GDP, with the

result that the enrollee share of the total premium would generally increase in 2019 and later.

As noted previously, the Federal costs for the coverage expansion provisions are somewhat

offset by the individual and employer penalties stipulated by the PPACA. We estimate that

individual penalties would provide $33 billion in revenue to the Federal government in fiscal

years 2014-2019, taking into account the time lag associated with collecting the penalty amounts

through the Federal income tax system. (A discussion of the estimated number of individuals

who would choose to remain uninsured is provided below.) Additionally, for firms that do not

For the newly eligible enrollees, the FMAP for fiscal year 2020 and later will be 90 percent, compared to an

average of 57 percent for the previously eligible enrollee population. In addition, the estimated cost includes new

Medicaid enrollments by previously eligible individuals as a result of the publicity, enrollment assistance through

the Exchanges, and reduced stigma associated with Federal assistance for health care. Also included here are the

Medicaid costs for the provision to extend Medicaid coverage to individuals up to age 26 who were previously in

foster care.

Employer penalties would be $2,000 per employee in 2014, generally, which is substantially less than the cost of

providing health insurance coverage. The relationship between penalties and premiums is much more complicated

for individuals than for employers; still, for many individuals the applicable penalty would be considerably smaller

than the cost of coverage.

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offer health insurance and are subject to the “play or pay” penalties, we estimate that the

penalties would total $87 billion in 2014-2019.

The penalty amounts for noncovered individuals will be indexed over time by the CPI (or, in

certain instances, by growth in income) and would normally increase more slowly than health

care costs. As a result, penalty revenues for nonparticipating individuals are estimated to grow

more slowly than the Federal expenditures for the premium assistance credits. Penalties for

employers who do not offer health insurance will be indexed by premium levels and will thus

keep pace with health care cost growth.

The health reform act specifies maximum out-of-pocket limits in 2014 equal to the

corresponding maximums as defined in the Internal Revenue Code for high-deductible health

plans. We estimate that these limits would be $6,645 for an individual and $13,290 for a family

with qualified creditable coverage (including employer-sponsored health insurance). For future

years, the limits are indexed to the growth in the average health insurance premium in the U.S.

Under this approach, the proportion of health care costs above the out-of-pocket maximum

would be relatively stable over time. For the basic “bronze” benefit plan for individuals, with an

actuarial value of 60 percent, we estimate that the cost-sharing percentage applicable before the

out-of-pocket maximum is reached would average about 76 percent in 2014 and later. The

corresponding cost-sharing rate for family coverage is 64 percent. For the “silver” benefit

package, the individual and family cost-sharing rates below the out-of-pocket maximums would

average about 47 percent and 40 percent, respectively. For the more comprehensive “gold” and

“platinum” benefit packages authorized through the Exchanges, these initial cost-sharing levels

would be significantly lower.

Health Insurance Coverage Impacts

The estimated effects of the PPACA on health insurance coverage are provided in table 2,

attached. As summarized earlier, we believe that these effects will be quite significant. By

calendar year 2019, the individual mandate, Medicaid expansion, and other provisions are

estimated to reduce the number of uninsured from 57 million under prior law to 23 million after

the PPACA. The percentage of the U.S. population with health insurance coverage is estimated

to increase from 83 percent under the prior-law baseline to 93 percent after the changes have

become fully effective.

Of the additional 34 million people who are estimated to be insured in 2019 as a result of the

PPACA, a little more than one-half (18 million) would receive Medicaid coverage due to the

expansion of eligibility to adults under 133 percent of the FPL. (Included in the total are an

estimated 50,000 individuals who would gain Medicaid coverage as former children in foster

care programs and who could be covered up to age 26 under the new law.) We anticipate that

the intended enrollment facilitation under the PPACA—i.e., that the Health Benefits Exchanges

help people determine which insurance plans are available and identify whether individuals

qualify for Medicaid coverage, premium subsidies, etc.—would result in a high percentage of

eligible persons becoming enrolled in Medicaid. We further believe that the great majority of

such persons (15 million) would become covered in the first year, 2014, with the rest covered by

2016. About 2 million people who currently have employer-sponsored health insurance are

estimated to enroll in Medicaid as a supplement to their existing coverage.

— 7 —

We estimate that 16 million people would receive health coverage in 2019 through the newly

created Exchanges under the PPACA. (Another 15 million, who currently have individual health

insurance policies, are also expected to switch to Exchange plans.) We modeled the choice to

purchase coverage from the Exchanges as a function of individuals’ and families’ expected

health expenditures relative to the cost of coverage if they were insured (taking into account

applicable premium subsidies). We also considered the required penalty associated with the

individual mandate if they chose to remain uninsured, along with other factors.

Our model

indicated that roughly 63 percent of those eligible for the Exchanges would choose to take such

coverage, with the principal incentive being the level of premium assistance available. For many

individuals, the penalty amounts for not having insurance coverage were not sufficiently large to

have a sizable impact on the coverage decision. Also, in this regard, individuals or families

would not be subject to a penalty for failing to enroll in an Exchange plan if the “bronze”

premium level (reduced by the premium tax credit, if applicable) would exceed 8 percent of

income. We estimate that this provision would exempt individuals and families with incomes

between about 400 percent and 542 percent of the FPL, representing about 16 percent of the non-

aged population.

The new legislation would require the Office of Personnel Management to arrange for at least

two private, multi-State health plans to be offered through each health insurance Exchange. The

multi-State plans would generally meet the same benefit, cost-sharing, network, and other

requirements applicable to private Exchange plans and would negotiate payment rates with

providers. (A State could enact a requirement for additional benefits in the multi-State plans,

beyond the essential benefits specified for a qualified plan, but would have to make payments on

behalf of eligible individuals to defray the cost of the additional benefits.) We estimate that the

multi-State plans would have costs that were very similar to those for other Exchange plans.

Employer-sponsored health insurance has traditionally been the largest source of coverage in the

U.S., and we anticipate that it would continue to be so under the PPACA. By 2019, an estimated

13 million workers and family members would become newly covered as a result of additional

employers offering health coverage, a greater proportion of workers enrolling in employer plans,

and an extension of dependent coverage up to age 26. However, a number of workers who

currently have employer coverage would likely become enrolled in the expanded Medicaid

program or receive subsidized coverage through the Exchanges. For example, some smaller

employers would be inclined to terminate their existing coverage, and companies with low

average salaries might find it to their—and their employees’—advantage to end their plans,

thereby allowing their workers to qualify for heavily subsidized coverage through the

Exchanges. Somewhat similarly, many part-time workers could obtain coverage more

inexpensively through the Exchanges or by enrolling in the expanded Medicaid program.

Finally, as mentioned previously, the per-worker penalties assessed on nonparticipating

employers are relatively low compared to prevailing health insurance costs. As a result, the

penalties would not be a substantial deterrent to dropping or forgoing coverage. We estimate

that such actions would collectively reduce the number of people with employer-sponsored

health coverage by about 14 million, or slightly more than the number newly covered through

Such other factors include age, gender of head of household, race, children, marital status, health status, and

employment status (for both the head of household and the spouse), as well as adjustments to reflect the availability

of health insurance on a guaranteed-issue basis and at community-rated, group insurance premium rates. Finally, we

also considered the general desire to comply with the intent of the law, even in the significant number of cases in

which the penalty amount would be small or would not apply.

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existing and new employer plans under the PPACA. As indicated in table 2, the total number of

persons with employer coverage in 2019 is estimated to be 1 million lower under the reform

legislation than under the prior law.

For the estimated 23 million people who would remain uninsured in 2019, roughly 5 million are

undocumented aliens who would be ineligible for Medicaid or the Exchange coverage subsidies

under the health reform legislation. The balance of 18 million would choose not to be insured

and to pay the penalty (if applicable) associated with the individual mandate. For the most part,

these would be individuals with relatively low health care expenses for whom the individual or

family insurance premium would be significantly in excess of any penalty and their anticipated

health benefit value. In other instances, as happens currently, some people would not enroll in

their employer plans or take advantage of the Exchange opportunities even though it would be in

their best financial interest to do so.

Impact on Medicare and Medicaid

Medicare

The estimated financial impacts of the Medicare provisions in the PPACA are provided in detail

in table 3, attached, which is organized by section of the legislation.

Net Medicare savings are

estimated to total $575 billion for fiscal years 2010-2019. Substantial savings are attributable to

provisions that would, among other changes, reduce Part A and Part B payment levels and adjust

future “market basket” payment updates for productivity improvements ($233 billion); eliminate

the Medicare Improvement Fund ($27 billion); reduce disproportionate share hospital (DSH)

payments ($50 billion); reduce Medicare Advantage payment benchmarks and permanently

extend the authority to adjust for coding intensity ($145 billion); freeze the income thresholds for

the Part B income-related premium for 9 years ($8 billion); implement an Independent Payment

Advisory Board together with strict Medicare expenditure growth rate targets ($24 billion); and

increase the HI payroll tax rate by 0.9 percentage point for individuals with incomes above

$200,000 and families above $250,000 ($63 billion). Other provisions would generate relatively

smaller amounts of savings, through such means as reporting physician quality measures,

reducing payments in cases involving hospital-acquired infections, reducing readmissions,

refining imaging payments, increasing Part D premiums for higher-income beneficiaries, and

implementing evidence-based coverage of preventive services.

These savings are slightly offset by the costs of closing the Part D coverage gap ($12 billion);

reducing the growth in the Part D out-of-pocket cost threshold ($1 billion); extending a number

of special payment provisions scheduled to expire, such as the postponement of therapy caps

($5 billion); and by the costs for improving preventive health services and access to primary care

($6 billion).

For ease of interpretation, we have incorporated the Medicare and Medicaid provisions of the managers’

amendments, as specified in Title X of the PPACA, into the corresponding provisions of Titles II through VII and

Title IX. For example, the savings shown for section 3403 (Independent Payment Advisory Board) represent the

impact of this provision from the original bill as amended by Senate managers’ amendment section 10320.

Similarly, any further amendments introduced by the Reconciliation Act and managers’ amendments to the

Reconciliation Act have also been included with the corresponding title of the PPACA. For example, the costs

under section 1101 of the Reconciliation Act, to close the Part D coverage gap or “donut hole,” are included with the

Part D provisions of PPACA, as are the costs of slowing the growth in the enrollee out-of-pocket cost threshold, as

added by the managers’ amendments to the Reconciliation Act.

— 9 —

The Reconciliation Act amendments introduced a new 3.8-percent “unearned income Medicare

contribution” on income from interest, dividends, annuities, and other non-earnings sources for

individual taxpayers with incomes above $200,000 and couples filing joint returns with incomes

above $250,000. Despite the title of this tax, this provision is unrelated to Medicare; in

particular, the revenues generated by the tax on unearned income are not allocated to the

Medicare trust funds (and thus are not shown in table 3).

Conversely, the revenues from fees on manufacturers and importers of brand-name prescription

drugs under section 9008 of the PPACA are earmarked for the Part B account in the Medicare

Supplementary Medical Insurance trust fund. From the standpoint of the Federal Budget, these

amounts are new receipts and serve to reduce the Budget deficit. From a trust fund perspective,

however, the situation is more complicated. No changes were made in the existing statutory

provisions for Part B beneficiary premiums and general revenue matching amounts, which by

law are set each year at a level adequate to finance Part B expenditures. With no change to the

existing financing, the additional revenues under section 9008 would result in an excessive level

of financing for Part B and an unnecessary accumulation of account assets. It would be

reasonable to establish a negative “premium margin” to maintain Part B assets at an appropriate

contingency level, which would reduce beneficiary premium rates and matching general

revenues by an amount equal to the new revenues from prescription drug fees. The estimated

savings amounts shown in table 3 for section 9008 represent the net Budget impact (additional

fee receipts less the reduction in beneficiary premiums). In practice, there would be no net

impact on the operations of the Part B trust fund account.

Based on the estimated savings for Part A of Medicare, the assets of the Hospital Insurance trust

fund would be exhausted in 2029 compared to 2017 under the prior law—an extension of

12 years. The combination of lower Part A costs and higher tax revenues results in a lower

Federal deficit based on budget accounting rules. However, trust fund accounting considers the

same lower expenditures and additional revenues as extending the exhaustion date of the HI trust

fund. In practice, the improved HI financing cannot be simultaneously used to finance other

Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the

appearance of this result from the respective accounting conventions.

It is important to note that the estimated savings shown in this memorandum for one category of

Medicare provisions may be unrealistic. The PPACA introduces permanent annual productivity

adjustments to price updates for most providers (such as hospitals, skilled nursing facilities, and

home health agencies), using a 10-year moving average of economy-wide private, non-farm

productivity gains. While such payment update reductions will create a strong incentive for

providers to maximize efficiency, it is doubtful that many will be able to improve their own

productivity to the degree achieved by the economy at large.

Over time, a sustained reduction

in payment updates, based on productivity expectations that are difficult to attain, would cause

Medicare payment rates to grow more slowly than, and in a way that was unrelated to, the

The provision of most health services tends to be very labor-intensive. Economy-wide productivity gains reflect

relatively modest improvements in the service sector together with much larger improvements in manufacturing.

Except in the case of physician services, we are not aware of any empirical evidence demonstrating the medical

community’s ability to achieve productivity improvements equal to those of the overall economy. The Office of the

Actuary’s most recent analysis of hospital productivity highlights the difficulties in measurement but suggests that

such productivity has been small or negligible during 1981 to 2005.

(See http://www.cms.hhs.gov/HealthCareFinancingReview/downloads/07-08Winterpg49.pdf.)

— 10 —

providers’ costs of furnishing services to beneficiaries. Thus, providers for whom Medicare

constitutes a substantive portion of their business could find it difficult to remain profitable and,

absent legislative intervention, might end their participation in the program (possibly

jeopardizing access to care for beneficiaries). Simulations by the Office of the Actuary suggest

that roughly 15 percent of Part A providers would become unprofitable within the 10-year

projection period as a result of the productivity adjustments.

Although this policy could be

monitored over time to avoid such an outcome, changes would likely result in smaller actual

savings than shown here for these provisions.

A related concern is posed by the requirements that will be placed on the Independent Payment

Advisory Board. The Board will be charged with recommending changes to certain Medicare

payment categories in an effort to prevent per-beneficiary Medicare costs from increasing faster

than the average of the CPI and the CPI-medical for “implementation years” 2015 through

2019.

The Secretary of HHS is required to implement the Board’s recommendations unless the

statutory process is overridden by new legislation.

Average Medicare costs per beneficiary usually increase over time as a function of (i) medical-

specific price growth, (ii) more utilization of services by beneficiaries, and (iii) greater

“intensity” or average complexity of these services. In general, limiting cost growth to a level

below medical price inflation alone would represent an exceedingly difficult challenge. Actual

Medicare cost growth per beneficiary was below the target level in only 4 of the last 25 years,

with 3 of those years immediately following the Balanced Budget Act of 1997; the impact of the

BBA prompted Congress to pass legislation in 1999 and 2000 moderating many of the BBA

provisions. As an additional comparison, during the last 25 years the average increase in the

target growth rate has been 0.33 percent per year below the average increase in nominal GDP per

capita—which is approximately the target level for the physician sustainable growth rate (SGR)

payment system. Congress has overridden the SGR-based payment reductions for each of the

last 7 years (and, to date, for the first 5 months of 2010).

The Board’s efforts would be further complicated by provisions that prohibit increases in cost-

sharing requirements and that exempt certain categories of Medicare expenditures from

consideration. We have estimated the savings for section 3403 under the assumption that the

provision will be implemented as specified; in particular, we have not assumed that Congress

would pass subsequent legislation to prevent implementation of the Board’s recommendations.

Although the savings from the other Medicare provisions in the PPACA are quite substantial,

they would not be sufficient to meet the growth rate targets specified in conjunction with the

Advisory Board. We estimate that meeting the growth rate targets in 2015-2019 would require

changes that would reduce Medicare growth rates by another 0.3 percent per year, on average, in

addition to the impacts of the productivity adjustments, MA and DSH reductions, and other

provisions in the PPACA.

The simulations were based on actual fiscal year 2007 Medicare and total facility margin distributions for

hospitals, skilled nursing facilities, and home health agencies. Provider revenues and expenditures were projected

using representative growth rates and the Office of the Actuary’s best estimates of achievable productivity gains for

each provider type, and holding all other factors constant. A sensitivity analysis suggested that the conclusions

drawn from the simulations would not change significantly under different provider behavior assumptions.

Maximum growth rate reductions of 0.5, 1.0, and 1.25 percentage points would apply to 2015, 2016, and 2017,

respectively, and the maximum would be 1.5 percentage points thereafter. After implementation year 2019, the

target growth amount would be based on the increase in per capita GDP plus 1 percentage point.

— 11 —

After 2019, further Advisory Board recommendations for growth rate reductions would generally

not be required. The other Medicare savings provisions, if permitted to continue, would

normally reduce expenditure growth rates to slightly below the post-2019 target level based on

per capita GDP growth plus 1 percent. Even if Medicare growth rates exceeded the targets,

recommendations might not be required if the projected Medicare growth rate were less than that

for overall national health expenditures on a per capita basis—as would tend to be the case,

given the continuing Medicare savings. (This exemption from the requirement to make

recommendations could not be applied in 2 successive years.) Although the Advisory Board

process would have no impact after 2019 based on the specific assumptions underlying these

estimates, it would still serve as a brake during any periods of unusually rapid spending growth.

Under the prior law, Medicare Advantage payment benchmarks were generally in the range of

100 to 140 percent of fee-for-service costs. Section 1102 of reconciliation amendments sets the

2011 MA benchmarks equal to the benchmarks for 2010 and specifies that, ultimately, the

benchmarks will equal a percentage (95, 100, 107.5, or 115 percent) of the fee-for-service rate in

each county. During a transition period, the benchmarks will be based on a blend of the prior

ratebook approach and the ultimate percentages. The phase-in schedule for the new benchmarks

will occur over 2 to 6 years, with the longer transitions for counties with the larger benchmark

decreases under the new method.

The PPACA, as amended, also introduces MA bonuses and rebate levels that are tied to the

plans’ quality ratings. Beginning in 2012, benchmarks will be increased for plans that receive a

4-star or higher rating on a 5-star quality rating system. The bonuses will be 1.5 percent in 2012,

3.0 percent in 2013, and 5.0 percent in 2014 and later. An additional county bonus, which is

equal to the plan bonus, will be provided on behalf of beneficiaries residing in specified counties.

The percentage of the “benchmark minus bid” savings provided as a rebate, which historically

has been 75 percent, will also be tied to a plan’s quality rating. In 2014, when the provision is

fully phased in, the rebate share will be 50 percent for plans with a quality rating of less than

3.5 stars; 65 percent for a quality rating of 3.5 to 4.49; and 70 percent for a quality rating of 4.5

or greater.

The new provisions will generally reduce MA rebates to plans and thereby result in less generous

benefit packages.

We estimate that in 2017, when the MA provisions will be fully phased in,

enrollment in MA plans will be lower by about 50 percent (from its projected level of

14.8 million under the prior law to 7.4 million under the new law).

Medicaid/CHIP

The estimated Federal financial effects of the Medicaid and CHIP provisions in the PPACA are

shown in table 4, attached. As noted earlier, the costs associated with the expansion of Medicaid

eligibility to individuals and families with incomes below 133 percent of the FPL and to children

previously in foster care are included with the national coverage provisions shown in table 1.

The additional funding for the CHIP program is also included in table 1 with the other coverage

provisions.

MA plans use rebate revenues to reduce Medicare coinsurance requirements, add extra benefits such as vision or

dental care, and/or reduce enrollee premiums for Part B or Part D of Medicare. The new law also requires

adjustments to offset the impact of excess “coding intensity” in determining plan risk scores. These adjustments

would prevent increases in future payments to MA plans as a result of such coding.

— 12 —

The total net Federal cost of the other Medicaid and CHIP provisions is estimated to be

$28 billion in fiscal years 2010-2019 and reflects numerous cost increases and decreases under

the individual provisions. Those with significant Federal savings include various provisions

increasing the level of Medicaid prescription drug rebates ($24 billion) and reductions in

Medicaid DSH expenditures ($14 billion). Interactions between the different sections of the

legislation, such as the lower Medicare Part B premiums under the PPACA, contribute an

additional $9 billion in reduced Medicaid outlays.

The key provisions that would increase Federal Medicaid and CHIP costs are the Medicaid

“Community First Choice Option” and other changes to encourage home and community-based

services ($29 billion), higher Federal matching rates for States with existing childless-adult

coverage expansions ($24 billion), a temporary increase in payments to primary care physicians

($11 billion), and increased payments to the territories ($7 billion). (The net impact of the

Medicaid and CHIP provisions on State Medicaid costs is a reduction totaling $33 billion through

fiscal year 2019. These savings result in part because certain of the provisions reallocate costs

from States to the Federal government.)

Impact of Provisions on the Rate of Growth in Health Care Costs

The PPACA includes a number of provisions that are intended, in part, to help control health care

costs and to change the overall trend in health spending growth. Many of these are specific to the

Medicare program, and their estimated financial effects are shown in table 3. While some of the

Medicare provisions would have a largely one-time impact on the level of expenditures (for

example, the reduction in MA benchmarks), others would have an effect on expenditure growth

rates. Examples of the latter include the productivity adjustments to Medicare payment updates

for most categories of providers, which would reduce overall Medicare cost growth by roughly

0.6 to 0.7 percent per year, and the Independent Payment Advisory Board process, which would

further reduce Medicare growth rates during 2015-2019 by about 0.3 percent per year. As

discussed previously, however, the growth rate reductions from productivity adjustments are

unlikely to be sustainable on a permanent annual basis, and meeting the CPI-based target growth

rates prior to 2020 will be very challenging as well.

The Independent Payment Advisory Board will also be required to periodically submit

recommendations to Congress and the President regarding methods of slowing the growth of non-

Federal health care programs. In many cases, Federal or State legislation would need to be

enacted to implement these recommendations. In other cases, they could be adopted voluntarily

by private health insurance plans or by health providers or introduced administratively by

government entities. Because the nature of these broader recommendations is not known and

there is no mandate to adopt them, we have not estimated an explicit impact on health care

spending growth.

Another provision that would tend to moderate health care cost growth rates is the excise tax on

high-cost employer-sponsored health insurance coverage (section 9001), which is described in

more detail in the section of this memorandum on national health expenditures. In reaction to

the tax, which would take effect in 2018, many employers would reduce the scope of their health

benefits. The resulting reductions in covered services and/or increases in employee cost-sharing

requirements would induce workers to use fewer services. Because plan benefit values will

generally increase faster than the threshold amounts for defining high-cost plans (which, after

— 13 —

2019, are indexed by the CPI), additional plans would become subject to the excise tax over

time, prompting many of those employers to scale back coverage. This continuing cycle would

have a moderate impact on the overall growth of expenditures for employer-sponsored insurance.

It should be noted, however, that an estimated 12 percent of insured workers in 2019 would be in

employer plans with benefit values in excess of the thresholds (before changes to reduce

benefits) and that this percentage would increase rapidly thereafter. The effect of the excise tax

on reducing health care cost growth would depend on its ongoing application to an expanding

share of employer plans and on an increasing scope of benefit reductions for affected plans.

Since this provision is characterized as affecting high-cost employer plans, its broader and

deeper impact could become an issue.

Certain other provisions of the PPACA are also intended to help control health care costs more

generally, through promotion of comparative effectiveness research, greater use of prevention

and wellness measures, administrative simplification, and augmented fraud and abuse

enforcement. For fiscal years 2010 through 2019, we estimate a relatively small reduction in

non-Medicare Federal health care expenditures of $2 billion for these provisions, all of which is

associated with comparative effectiveness research.

Comparative Effectiveness Research

We reviewed literature and consulted experts to determine the potential cost savings that could

be derived from comparative effectiveness research (CER). We found that the magnitude of

potential savings varies widely depending upon the scope and influence of comparative

effectiveness efforts. Small savings could be achieved through the wide availability of non-

binding research, while substantial savings could be generated by a comparative effectiveness

board with authority over payment and coverage policies.

Our interpretation of the CER provisions in the PPACA, which allow the Secretary of HHS to

use evidence and findings from CER within defined limits in making coverage determinations

under Medicare, is consistent with a low level of influence, translating into an estimated total

reduction in national health expenditures of $8 billion for calendar years 2010 through 2019, and

Federal savings of about $4 billion for fiscal years 2010 through 2019 (including Medicare). We

anticipate that such savings would develop gradually, as changes in provider practice and culture

evolved over time. Expert input on this subject suggests that the full impact of comparative

effectiveness research, together with dissemination and application of its results, would take

many years to develop.

Other Provisions

We show a negligible financial impact over the next 10 years for the other provisions intended to

help control future health care cost growth. There is no consensus in the available literature or

among experts that prevention and wellness efforts result in lower costs. Several prominent

studies conclude that such provisions—while improving the quality of individuals’ lives in

important ways—generally increase costs overall. For example, while it is possible that savings

can be achieved for many people by diagnosing diseases in early stages and promoting lifestyle

— 14 —

and behavioral changes that reduce the risk for serious and costly illnesses, additional costs are

incurred as a result of increased screenings, preventive care, and extended years of life.

Regarding the general fraud and abuse and administrative simplification provisions (that is,

excluding the Medicare and Medicaid provisions), we find that the language is not sufficiently

specific to provide estimates.

CLASS Program

Title VIII of the health reform act establishes a new, voluntary, Federal insurance program

providing a cash benefit if a participant is unable to perform at least two or three activities of

daily living or has substantial cognitive impairment. The program will be financed by

participant premiums, with no Federal subsidy. Participants will have to meet certain modest

work requirements during a 5-year vesting period before becoming eligible for benefits. Benefits

are intended to be used to help purchase community living assistance services and supports

(CLASS) that would help qualifying beneficiaries maintain their personal and financial

independence and continue living in the community. Benefits can also be used to help cover the

cost of institutional long-term care.

As shown in the table on page 2, we estimate a net Federal savings for the CLASS program of

$38 billion during the first 9 years of operations—the first 5 of which are prior to the commence-

ment of benefit payments. After 2015, as benefits are paid, the net savings from this program

will decline; in 2025 and later, projected benefits exceed premium revenues, resulting in a net

Federal cost in the longer term.

We estimate that roughly 2.8 million persons will participate in the program by the third year.

This level represents about 2 percent of potential participants, compared to a participation rate of

4 percent for private long-term care insurance offered through employers. Factors affecting

participation in CLASS include the program’s voluntary nature, the lack of a Federal subsidy, a

minimal premium for students and individuals with incomes under 100 percent of the FPL

(initially $5 per month), a relatively high premium for all other participants as a result of adverse

selection and the effect of subsidizing participants paying the $5 premium, a new and unfamiliar

benefit, and the availability of lower-priced private long-term care insurance for many.

Compounding this situation will be the probable participation of a significant number of

individuals who already meet the functional limitation requirements to qualify for benefits. In

the sixth year of the program (2016), these participants would begin to receive benefits, along

with others who had developed such limitations in the interim. We estimate that an initial

Title IV in the PPACA creates a Prevention and Public Health Fund and authorizes the appropriation of

$15 billion for these purposes. We consider these expenditures to be primarily administrative in nature and thus

have not included them as program costs in this memorandum.

The CLASS program is intended to be financed on a long-range, 75-year basis through participant premiums that

would fully fund benefits and administrative expenses. If this goal can be achieved, despite anticipated serious

adverse selection problems (described subsequently), then annual expenditures would be met through a combination

of premium income and interest earnings on the assets of the CLASS trust fund. The Federal Budget impact would

be the net difference between premium receipts and program outlays. Thus, the trust fund would be adequately

financed in this scenario, but the Federal Budget would have a net savings each year prior to 2025 and a net cost

each year thereafter.

— 15 —

average premium level of about $240 per month would be required to adequately fund CLASS

program costs for this level of enrollment, adverse selection, and premium inadequacy for

students and low-income participants. (Except for those paying the $5 premium, individuals

enrolling in a given year will pay a constant premium amount throughout their participation,

unless trust fund deficits necessitate a premium increase. Premiums will vary by age at

enrollment and by year of enrollment.)

In general, voluntary, unsubsidized, and non-underwritten insurance programs such as CLASS

face a significant risk of failure as a result of adverse selection by participants. Individuals with

health problems or who anticipate a greater risk of functional limitation would be more likely to

participate than those in better-than-average health. Setting the premium at a rate sufficient to

cover the costs for such a group further discourages persons in better health from participating,

thereby leading to additional premium increases. This effect has been termed the “classic

assessment spiral” or “insurance death spiral.” The problem of adverse selection is intensified

by requiring participants to subsidize the $5 premiums for students and low-income enrollees.

Although Title VIII includes modest work requirements in lieu of underwriting and specifies that

the program is to be “actuarially sound” and based on “an actuarial analysis of the 75-year costs

of the program that ensures solvency throughout such 75-year period,” there is a very serious risk

that the problem of adverse selection will make the CLASS program unsustainable.

Immediate Insurance Reforms

A number of provisions in the PPACA have an immediate effect on insurance coverage. Most of

these provisions, however, do not have a direct impact on Federal expenditures. (A discussion of

their impact on national health expenditures is included in the following section of this

memorandum.) Section 1101 of the PPACA authorizes the expenditure of up to $5 billion in

support of a temporary national insurance pool for high-risk individuals without other health

insurance. Section 1102 requires the Secretary of HHS to establish a Federal reinsurance

program in 2010-2013 for early retirees and their families in employer-sponsored health plans.

Participation by employers is optional, and the law authorizes up to $5 billion in Federal

financing for the reinsurance costs. No other financing is provided, and reinsurance claims

would be paid only as long as the authorized amount lasts. We estimate that the full amount of

the authorizations for sections 1101 and 1102 would be expended during the first 1 to 3 calendar

years of operation.

National Health Expenditure Impacts

The estimated effects of the PPACA on overall national health expenditures (NHE) are shown in

table 5. In aggregate, we estimate that for calendar years 2010 through 2019, NHE would

increase by $311 billion, or 0.9 percent, over the updated baseline projection that was released on

June 29, 2009.

Year by year, the relative increases are largest in 2016, when the coverage

expansions would be fully phased in (2.0 percent), and gradually decline thereafter to 1.0 percent

An analysis of the potential adverse selection problems for the CLASS program was performed by a nonpartisan,

joint workgroup of the American Academy of Actuaries and the Society of Actuaries. Their report was issued on

July 22, 2009 and is available at http://www.actuary.org/pdf/health/class_july09.pdf .

R. Foster and S. Heffler, “Updated and Extended National Health Expenditure Projections, 2010-2019.”

Memorandum dated June 29, 2009. Available online at http://www.cms.hhs.gov/NationalHealthExpendData/

Downloads/NHE_Extended_Projections.pdf.

— 16 —

in 2019, as the effects of the Medicare market basket reductions compound and as the excise tax

on high-cost employer health plans becomes effective. The NHE share of GDP is projected to be

21.0 percent in 2019, compared to 20.8 percent under prior law.

The increase in total NHE is estimated to occur primarily as a net result of the substantial

expansions in coverage under the PPACA, together with the expenditure reductions for Medicare.

Numerous studies have demonstrated that individuals and families with health insurance use more

health services than otherwise-similar persons without insurance. Under the health reform

legislation, as noted above, an estimated 34 million currently uninsured people would gain

comprehensive coverage through the health insurance Exchanges, their employers, or Medicaid.

The availability of coverage would typically result in a fairly substantial increase in the utilization

of health care services, with a corresponding impact on total health expenditures. These higher

costs would be partially offset by the sizable discounts imposed on providers by State Medicaid

payment rules and by the significant discounts negotiated by private health insurance plans. We

estimate that the net effect of the utilization increases and price reductions arising from the

coverage provisions of the PPACA would increase NHE in 2019 by about 3.4 percent.

The PPACA will also affect aggregate NHE through the Medicare savings provisions. We

estimate that these impacts would reduce NHE by roughly 2.4 percent in 2019, assuming that the

productivity adjustments to Medicare payment updates and the impacts of the Independent

Payment Advisory Board can be sustained through this period. The legislation would have only

a slight impact on the utilization of health care services by Medicare beneficiaries (subject to the

caveat mentioned previously regarding possible access issues under the provision to permanently

reduce annual provider payment updates by economy-wide productivity gains). Medicaid

outlays for health care would increase under some provisions and decrease under others;

excluding the coverage expansion, the overall higher level of such costs would lower total

U.S. health expenditures in 2019 by about 0.1 percent.

The immediate insurance reforms in Title I will affect national health expenditures as well,

although by relatively small amounts. We estimate that the creation of a national high-risk

insurance pool will result in roughly 375,000 people gaining coverage in 2010, increasing

national health spending by $4 billion. By 2011 and 2012 the initial $5 billion in Federal

funding for this program would be exhausted, resulting in substantial premium increases to

sustain the program; we anticipate that such increases would limit further participation. An

estimated 2.7 million retirees and dependents would be affected by the Federal reinsurance

program for early retirees with employer-sponsored insurance. Although the reinsurance

program would increase Federal costs by the allotted $5 billion, we estimate that the impact on

total national health expenditures would be negligible.

Beginning in 2010, qualified child dependents below age 26 who are uninsured will be allowed

to enroll under dependent coverage. An estimated 485,000 dependent children will gain

insurance coverage through their parents’ private group health plans, increasing national health

spending by $0.9 billion. These impacts are expected to persist through 2013. Additionally,

because this provision would not expire when the Medicaid expansion, individual mandate, and

Exchanges start in 2014, we anticipate that these individuals would continue to remain covered

as dependents even though they may be newly eligible for other coverage. Finally, we did not

estimate NHE coverage or cost impacts for the other immediate reform provisions, such as

prohibiting limitations on pre-existing conditions or elimination of lifetime aggregate benefit

— 17 —

limits. We believe that each of these provisions would have only a relatively minor upward

impact on national health spending.

Section 9001 of the PPACA places an excise tax on employer-sponsored health insurance

coverage with a benefit value above specified levels (generally $10,200 for individuals and

$27,500 for families in 2018, adjusted in 2019 by growth in the CPI plus 1 percentage point and

by growth in the CPI thereafter).

The tax is 40 percent of the excess benefit value above these

thresholds. We estimate that, in aggregate, affected employers will reduce their benefit packages

in such a way as to eliminate about three-quarters of the excess benefit value. The resulting

higher cost-sharing requirements for employees would have an initial impact on the overall level

of health expenditures, reducing total NHE by an estimated 0.1 percent in 2019. Moreover,

because health care costs will generally increase faster than the CPI, we anticipate additional,

incremental benefit coverage reductions in future years to prevent an increase in the share of

employer coverage subject to the excise tax. These further adjustments would contribute to a

small reduction in the growth in total health care costs (but an increase in out-of-pocket costs) for

affected employees in 2019 and later.

As mentioned earlier, the proportion of workers

experiencing reductions in their employer-sponsored health coverage as a result of the excise tax

is estimated to increase rapidly after 2019.

The health reform legislation, as enacted, imposes collective annual fees on manufacturers and

importers of brand-name prescription drugs and on health insurance plans. In addition, the

PPACA establishes an excise tax on non-personal-use retail sales by manufacturers and

importers of medical devices. For manufacturers and importers of brand-name prescription

drugs, the fee is $2.5 billion in 2011, increasing to a maximum of $4.1 billion by 2018, and then

is set at $2.8 billion per year in 2019 and beyond.

For insurers, the annual fee is set at

$8.0 billion starting in 2014 and rises to $14.3 billion by 2018; thereafter, the fee increases by the

rate of premium growth. In each case, the total annual fee amount would be assessed on the

specified industry as a whole; the share of the fee payable by any given firm in that industry

would be determined based on sales (for manufacturers and importers of drugs) and on net

premiums (in the case of insurers), with some limited exemptions. The excise tax on medical

device sales is effective in 2011 and is set at 2.3 percent of first sales in each year. We anticipate

that these fees and the excise tax would generally be passed through to health consumers in the

form of higher drug and device prices and higher insurance premiums, with an associated

increase in overall national health expenditures ranging from $2.1 billion in 2011 to $18.2 billion

in 2018 and $17.8 billion in 2019.

Although, compared to prior law, the level of total national health expenditures is estimated to be

higher through 2019 under the PPACA, two particular provisions of the legislation would help

reduce NHE growth rates after 2016. Specifically, the productivity adjustments to most

Medicare payment updates would reduce NHE growth by about 0.10 to 0.15 percent per year. In

addition, the excise tax on high-cost employer health plans (with benefit thresholds indexed by

the CPI plus 1 percent for 2019 and by the CPI thereafter) would exert a further decrease in NHE

Higher thresholds apply in the case of qualified retirees and individuals in high-risk occupations. Additionally, a

higher threshold applies for employers with above-average proportions of older and/or female workers.

We have not included the excise taxes under this provision in the estimated financial effects of the PPACA shown

in this memorandum. Similarly, the indirect impacts on Federal income taxes and social insurance payroll taxes are

not shown.

These fees are allocated to the Part B account of the Medicare Supplementary Medical Insurance trust fund.

— 18 —

growth rates of an estimated 0.05 percent in 2019 and slightly more than that for some years

after. Although these growth rate differentials are not large, over time they would have a

noticeable downward effect on the level of national health expenditures. Such an outcome,

however, would depend critically on the sustainability of both provisions. As discussed

previously, the Medicare productivity adjustments could become unsustainable even within the

next 10 years, and over time the reductions in the scope of employer-sponsored health insurance

could also become an issue. For these reasons, the estimated reductions in NHE growth rates

after 2016 may not be fully achievable.

Underlying the overall moderate effects of the PPACA on NHE will be various changes by

payer. Based on the net impact of (i) the substantial coverage expansions, (ii) the significant

cost-sharing subsidies for low-to-middle-income persons, (iii) the maximum out-of-pocket

limitations associated with the qualified health benefit, and (iv) the increases in workers’ cost-

sharing obligations in plans affected by the excise tax on high-cost employer-sponsored health

insurance coverage, we estimate that overall out-of-pocket spending would be reduced

significantly by the PPACA (a net total decline of $237 billion in calendar years 2010-2019).

Public spending would increase under the PPACA as a result of the expansion of the Medicaid

program and additional CHIP funding but would be reduced by the net Medicare savings from

the legislation. Private expenditures would decrease somewhat because of the net reduction in

the number of persons with employer-sponsored health insurance and the reduced benefits for

plans affected by the excise tax on high-cost employer coverage. The sizable growth in health

insurance coverage through Exchange plans would also affect NHE amounts by payer. Prior to

the PPACA, public expenditures (principally Medicare and Medicaid) were estimated to

represent 52 percent of total NHE in 2019. Under the PPACA, the public share would be

roughly 51 percent if health expenditures by Exchange plans are classified as private spending.

Caveats and Limitations of Estimates

The Federal costs and savings, changes in health insurance coverage, and effects on total national

health expenditures presented in this memorandum represent the Office of the Actuary’s best

estimates for the PPACA. Although we believe that these estimates are reasonable and fairly

portray the likely future effects of this comprehensive package of health care reforms, they are

The allocation of NHE by payer is based on the entity that is responsible for establishing the coverage and benefit

provisions and that has the primary responsibility to ensure that payment is made for health care services.

(Auxiliary analyses of NHE by sponsor are also prepared, based on the financing of health expenditures in the U.S.)

Because all Exchange plans will be private plans, under the traditional NHE classification approach these

expenditures would be considered private health insurance spending. However, the classification of health

expenditures made by Exchange plans is complicated by three factors:

(i) The Exchanges will be government entities, with a role in setting minimum benefit standards, but they will not

directly provide health insurance coverage. The same situation applies to the multi-State Exchange plans

arranged by the Office of Personnel Management.

(ii) The Federal government, through the refundable tax credits and cost-sharing reductions, will subsidize a

significant portion of Exchange plan premiums and cost-sharing liabilities.

(iii) The premium subsidies will vary between zero and 100 percent from one person to another, and the cost-sharing

subsidies from zero to 80 percent on an insurance-value basis.

A more precise determination of the appropriate classification of the Exchange plan expenditures based on national

health expenditure accounting principles will be conducted in the future.

— 19 —

subject to much greater uncertainty than normal. The following caveats should be noted, and the

estimates should be interpreted cautiously in view of their limitations.

• These financial and coverage impacts are based on the provisions of the PPACA as enacted on

March 23, 2010 and amended on March 30 by the Health Care and Education Reconciliation

Act of 2010.

• Many of the provisions, particularly the coverage expansions, are unprecedented or have been

implemented only on a smaller scale (for example, at the State level). Consequently, little

historical experience is available with which to estimate the potential impacts.

• The behavioral responses to changes introduced by national health reform legislation are

impossible to predict with certainty. In particular, the responses of individuals, employers,

insurance companies, and Exchange administrators to the new coverage mandates, Exchange

options, and insurance reforms could differ significantly from the assumptions underlying the

estimates presented here.

• The nominal dollar amounts of costs and savings under national health reform are sensitive to

the assumed trajectory of future health cost trends. Relative measures, such as the cost as a

percentage of GDP, are less sensitive.

• Due to the very substantial challenges inherent in modeling national health reform legislation,

our estimates will vary from those of other experts and agencies. Differences in results from

one estimating entity to another may tend to cause confusion among policy makers. These

differences, however, provide a useful reminder that all such estimates are uncertain and that

actual future impacts could differ significantly from the estimates of any given organization.

Indeed, the future costs and coverage effects could lie outside of the range of estimates

provided by the various estimators.

• The existing number of uninsured persons in the U.S. is difficult to measure, and the number

of uninsured persons who are undocumented aliens is considerably more uncertain. Medicaid

coverage and Exchange premium subsidies under the PPACA are not available to undocu-

mented aliens. As a result of these measurement difficulties, the actual costs under the

PPACA and the reduction in the number of uninsured persons may be somewhat higher or

lower than estimated in this memorandum.

• Certain Federal costs and savings were not included in our estimates if (i) a provision would

have no, or only a minor, impact; (ii) the legislative language did not provide sufficient detail

with which to estimate a provision’s impact; or (iii) the estimates are outside of the scope of

the Office of the Actuary’s expertise and will be prepared by other agencies. In particular, we

did not include any Federal savings pertaining to the excise tax on high-cost employer-

sponsored health insurance coverage, the fees on insurance plans, the excise tax on devices,

and other non-Medicare revenue provisions of the PPACA, as those estimates are provided by

the Department of the Treasury. (In contrast, the impacts of these provisions on national

health expenditures are reflected.) Similarly, Federal administrative expenses associated with

the PPACA are not included here and will be estimated separately. The Congressional Budget

Office and the Joint Committee on Taxation have estimated that the total amount of Medicare

savings and additional excise tax and other revenues would somewhat more than offset the

cost of the national coverage provisions, resulting in an overall small reduction in the Federal

— 20 —

deficit through 2019, and for the following 10 years as well, if all of the provisions continued

to be fully implemented.

• In estimating the financial impacts of the PPACA, we assumed that the increased demand for

health care services could be met without market disruptions. In practice, supply constraints

might initially interfere with providing the services desired by the additional 34 million insured

persons. Price reactions—that is, providers successfully negotiating higher fees in response to

the greater demand—could result in higher total expenditures or in some of this demand being

unsatisfied. Alternatively, providers might tend to accept more patients who have private

insurance (with relatively attractive payment rates) and fewer Medicare or Medicaid patients,

exacerbating existing access problems for Medicaid enrollees. Either outcome (or a

combination of both) should be considered plausible and even probable initially.

The latter possibility is especially likely in the case of the substantially higher volume of

Medicaid services, for which provider payment rates are well below average. Therefore, it is

reasonable to expect that a significant portion of the increased demand for Medicaid would be

difficult to meet, particularly over the first few years.

We have not attempted to model that impact or other plausible supply and price effects, such

as supplier entry and exit or cost-shifting towards private payers. A specific estimate of these

potential outcomes is impracticable at this time, given the uncertainty associated with both the

magnitude of these effects and the interrelationships among these market dynamics. We may

incorporate such factors in future estimates, should we determine that they can be estimated

with a reasonable degree of confidence. For now, we believe that consideration should be

given to the potential consequences of a significant increase in demand for health care

meeting a relatively fixed supply of health care providers and services.

• As stated in the section on Medicare estimates, reductions in payment updates to health care

providers, based on economy-wide productivity gains, are unlikely to be sustainable on a

permanent annual basis. If these reductions were to prove unworkable within the 10-year

period 2010-2019 (as appears probable for significant numbers of hospitals, skilled nursing

facilities, and home health agencies), then the actual Medicare savings from these provisions

would be less than shown in this memorandum. Similarly, the further reductions in Medicare

growth rates mandated for 2015 through 2019 through the Independent Payment Advisory

Board may be difficult to achieve in practice.

• In estimating the financial impact of the Medicaid eligibility expansion, we assumed that

existing and new Medicaid enrollees would be appropriately classified for FMAP purposes.

• As discussed in the section on the CLASS program, we believe that there is a very serious risk

that the program, as currently specified, will not be sustainable because of adverse selection.

Conclusions

The national health care reform provisions in the Patient Protection and Affordable Care Act, as

amended, make far-reaching changes to the health sector, including mandated coverage for most

people, required payments by most employers not offering insurance, expanded eligibility for

Medicaid, Federal premium and cost-sharing subsidies for many individuals and families, a new

system of health benefits Exchanges for facilitating coverage, and a new Federal insurance

— 21 —

program in support of long-term care. Additional provisions will reduce Medicare outlays, make

other Medicaid modifications, provide more funding for the CHIP program, add certain benefit

enhancements for these programs, and combat fraud and abuse. Federal revenues will be

increased through an excise tax on high-cost insurance plans; fees or excise taxes on drugs,

devices, and health plans; higher Hospital Insurance payroll taxes for high-income taxpayers; a

new tax on investment revenues and other unearned income; and other provisions.

The Office of the Actuary at CMS has estimated the effects of the non-tax provisions of the

PPACA on Federal outlays, overall national health expenditures, and health insurance coverage

in the U.S. Our estimates are based on available data sources and what we believe are

reasonable assumptions regarding individual, employer, and health plan responses to the

legislation, together with analyses of the likely changes in the cost and use of health care

services. Our primary estimates for the PPACA are as follows:

• The total Federal cost of the national insurance coverage provisions would be about

$828 billion during fiscal years 2010 through 2019.

• By 2019, an additional 34 million U.S. citizens and other legal residents would have health

insurance coverage meeting the essential-benefit requirements.

• Total net savings in 2010-2019 from Medicare provisions would offset about $575 billion of

the Federal costs for the national coverage provisions. The Medicaid and CHIP provisions,

excluding the expansion of Medicaid and increased CHIP funding, would raise costs by

$28 billion. Additional Federal revenues would further offset the coverage costs; however,

the Office of the Actuary does not have the expertise necessary to estimate all such impacts.

The Congressional Budget Office and the Joint Committee on Taxation have estimated an

overall reduction in the Federal Budget deficit through 2019 under the PPACA.

• The new Community Living Assistance Services and Supports (CLASS) insurance program

would produce an estimated total net savings of $38 billion through fiscal year 2019. This

effect, however, is due to the initial 5-year period during which no benefits would be paid.

Over the longer term, expenditures would exceed premium receipts, and there is a very

serious risk that the program would become unsustainable as a result of adverse selection by

participants.

• Total national health expenditures in the U.S. during 2010-2019 would increase by about

0.9 percent. The additional demand for health services could be difficult to meet initially with

existing health provider resources and could lead to price increases, cost-shifting, and/or

changes in providers’ willingness to treat patients with low-reimbursement health coverage.

• The mandated reductions in Medicare payment updates for providers, the actions of the

Independent Payment Advisory Board, and the excise tax on high-cost employer-sponsored

health insurance would have a downward impact on future health care cost growth rates.

During 2010-2019, however, these effects would be outweighed by the increased costs

associated with the expansions of health insurance coverage. Also, the longer-term viability

of the Medicare update reductions is doubtful. Other provisions, such as comparative

effectiveness research, are estimated to have a relatively small effect on expenditure growth

rates.

— 22 —

We hope that the information presented here will be of value to policy makers and administrators

as they endeavor to implement and monitor the health reform act.

Richard S. Foster, FSA, MAAA

Chief Actuary

Attachments: 5

Table 1 — Estimated Federal Costs (+) or Savings (-) under the Patient Protection and Affordable Care Act, as Enacted and Amended, in billions

Provisions

Fiscal Year

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total, FY

2010-2019

Total* $9.2 -$0.7 -$12.6 -$22.3 $16.8 $57.9 $63.1 $54.2 $47.2 $38.5 $251.3

Coverage Provisions: 3.3 4.6 4.9 5.2 82.9 119.2 138.2 146.6 157.6 165.8 828.2

Medicaid Expansion and CHIP Funding — — — — 38.8 62.9 78.7 72.2 76.3 81.2 410.3

Credits: 3.3 4.6 4.9 5.2 49.6 67.6 77.9 99.1 110.3 115.5 537.9

Individual Exchange Subsidies: — — — — 43.9 61.4 76.3 99.1 110.3 115.5 506.5

Refundable Premium Tax Credits — — — — 38.4 54.2 68.3 88.6 98.7 103.0 451.1

Reduced Cost-Sharing Requirements — — — — 5.5 7.2 8.0 10.5 11.6 12.5 55.4

Small Employer Credits 3.3 4.6 4.9 5.2 5.7 6.2 1.6 0.0 0.0 0.0 31.4

Penalties: — — — — -5.5 -11.3 -18.4 -24.7 -29.0 -30.9 -119.9

Individual Penalties — — — — 0.0 -2.4 -5.3 -7.6 -8.6 -9.2 -33.1

Employer Penalties — — — — -5.5 -9.0 -13.0 -17.1 -20.4 -21.8 -86.8

Medicare 1.2 -4.7 -14.9 -26.3 -68.8 -60.3 -75.2 -92.1 -108.2 -125.7 -575.1

Medicaid/CHIP (Excluding Coverage Expansions)

-0.9 -0.9 0.8 4.5 8.6 5.1 4.6 3.4 1.3 1.7 28.3

Cost Trend Proposals: — — — — 0.0 -0.1 -0.2 -0.4 -0.6 -0.9 -2.3

Comparative Effectiveness Research† — — — — 0.0 -0.1 -0.2 -0.4 -0.6 -0.9 -2.3

Prevention and Wellness — — — — 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Fraud and Abuse — — — — 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Administrative Simplification — — — — 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Additional Proposals: 5.6 0.4 -3.3 -5.6 -5.9 -6.0 -4.3 -3.4 -2.8 -2.4 -27.8

CLASS Program — -2.8 -4.5 -5.6 -5.9 -6.0 -4.3 -3.4 -2.8 -2.4 -37.8

Immediate Reforms 5.6 3.2 1.2 — — — — — — — 10.0

* Excludes Title IX revenue provisions except for sections 9008 (fees on manufacturers and importers of brand-name prescription drugs) and 9015 (additional HI payroll tax). Also

excludes certain provisions with limited impacts and Federal administrative costs.

† Excludes the Medicare impact of CER, which is included in the Medicare savings total.

Source: Centers for Medicare & Medicaid Services, Office of the Actuary.

April 22, 2010

Table 2 — Estimated Effects of the Patient Protection and Affordable Care Act, as Enacted and Amended, on Enrollment by Insurance Coverage, in millions

Calendar Year

Prior Law Baseline

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Medicare 46.9 48.0 49.4 50.9 52.4 53.9 55.4 57.1 58.7 60.5

Medicaid/CHIP 59.2 60.5 61.6 62.0 60.6 60.3 61.1 61.9 62.7 63.5

Other Public 12.3 12.6 12.9 13.2 13.6 13.9 14.2 14.6 14.9 15.2

Employer-Sponsored Private Health Insurance 163.8 163.2 164.5 165.0 166.1 166.6 166.4 166.2 166.0 165.9

Other Private Health Insurance* 26.1 25.3 25.5 25.6 25.8 25.8 25.8 25.8 25.8 25.7

Uninsured 48.3 48.6 47.9 48.1 50.0 51.7 53.1 54.4 55.6 56.9

Insured Share of US Population† 84.4% 84.5% 84.8% 84.9% 84.4% 84.0% 83.8% 83.5% 83.3% 83.0%

Calendar Year

New Law — PPACA

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Medicare 46.9 48.0 49.4 50.9 52.4 53.9 55.4 57.1 58.7 60.5

Medicaid/CHIP 59.2 60.5 61.6 62.0 83.6 84.6 84.1 82.1 82.9 83.9

Other Public 12.6 12.6 12.9 13.2 13.6 13.9 14.2 14.6 14.9 15.2

Employer-sponsored Private Health Insurance 164.3 163.7 164.9 165.5 168.1 169.0 166.6 164.7 163.7 164.5

Other Private Health Insurance* 26.1 25.3 25.5 25.6 12.6 12.2 11.5 10.9 10.4 10.0

Exchanges — — — — 16.9 18.6 24.8 29.8 31.4 31.6

Uninsured 47.5 48.1 47.4 47.6 23.8 22.2 21.0 22.0 22.8 23.1

Insured Share of US Population† 84.7% 84.6% 85.0% 85.0% 92.6% 93.2% 93.6% 93.3% 93.1% 93.1%

Calendar Year

Impact of PPACA

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Medicare — — — — — — — — — —

Medicaid/CHIP — — — — 23.0 24.3 23.1 20.2 20.2 20.4

Other Public 0.4 — — — — — — — — —

Employer-sponsored Private Health Insurance 0.5 0.5 0.5 0.5 2.0 2.5 0.2 -1.5 -2.4 -1.4

Other Private Health Insurance* — — — — -13.2 -13.7 -14.3 -14.9 -15.3 -15.7

Exchanges — — — — 16.9 18.6 24.8 29.8 31.4 31.6

Uninsured -0.9 -0.5 -0.5 -0.5 -26.2 -29.5 -32.1 -32.4 -32.9 -33.8

Insured Share of US Population† 0.3% 0.2% 0.2% 0.2% 8.2% 9.1% 9.8% 9.8% 9.9% 10.1%

* In the prior-law baseline, other private health insurance includes private Medicare supplemental coverage and individual coverage. In the new-law estimates, other

private health insurance includes only those with Medicare supplemental coverage.

† Calculated as a proportion of total U.S. population, including unauthorized immigrants.

Source: Centers for Medicare & Medicaid Services, Office of the Actuary.

April 22, 2010

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

TITLE III-IMPROVING THE QUALITY AND EFFICIENCY OF HEALTH CARE

SUBTITLE A-TRANSFORMING THE HEALTH CARE DELIVERY SYSTEM

PART I-LINKING PAYMENT TO QUALITY OUTCOMES IN THE MEDICARE PROGRAM

3001

Hospital Value-Based Purchasing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

3002

Physician Quality Reporting Initiative 0 0 0 210 120 -190 -390 -580 -560 -530 330 -1,920

3003

Expansion of Physician Feedback Program 0 0 0 0 0 0 0 0 0 0 0 0

3004

Quality Reporting for Long-Term Care Hospitals, Inpatient

Rehabilitation Hospitals, and Hospice Programs

0 0 0 0 -30 -30 -30 -30 -20 -20 -30 -160

3005

Quality Reporting for PPS-exempt Cancer Hospitals 0 0 0 0 0 0 0 0 0 0 0 0

3006

Value-based Purchasing for SNF, HHA, & ASC 0 0 0 0 0 0 0 0 0 0 0 0

3007

Value-based Payment Modifer under Physician Fee Schedule 0 0 0 0 0 0 0 0 0 0 0 0

3008

Payment Adjustment for Conditions Acquired in Hospitals 0 0 0 0 0 -520 -610 -660 -700 -750 0 -3,240

PART II-NATIONAL STRATEGY TO IMPROVE HEALTH CARE QUALITY

3011 National Strategy 0 0 0 0 0 0 0 0 0 0 0 0

3012 Interagency Working Group on Health Care Quality 0 0 0 0 0 0 0 0 0 0 0 0

3013 Quality Measure Development 0 0 0 0 0 0 0 0 0 0 0 0

3014

Quality and Efficiency Measurement 0 0 0 0 0 0 0 0 0 0 0 0

3015

Data Collection; Public Reporting 0 0 0 0 0 0 0 0 0 0 0 0

PART III-ENCOURAGING DEVELOPMENT OF THE NEW PATIENT CARE MODELS

3021

CMS Innovation Center 0 0 0 0 0 0 0 0 0 0 0 0

3022

Medicare Shared Savings Program 0 0 0 0 0 0 0 0 0 0 0 0

3023

National Pilot Program on Payment Bundling 0 0 0 0 0 0 0 0 0 0 0 0

3024

Independence at Home Demonstration Program 0 0 0 0 0 0 0 0 0 0 0 0

3025

Hospital Readmissions Reduction Program 0 0 0 -530 -630 -1,180 -1,320 -1,410 -1,510 -1,620 -1,160 -8,200

3026

Community-Based Care Transitions Program

Part A 0 100 100 100 100 100 0 0 0 0 400 500

Part B 0 0 0 0 0 0 0 0 0 0 0 0

3027

Extension of Gainsharing Demonstration 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE B-IMPROVING MEDICARE FOR PATIENTS AND PROVIDERS

PART I-ENSURING BENEFICIARY ACCESS TO PHYSICIAN CARE AND OTHER SERVICES

3101

Increase in Physician Payment Update 0 0 0 0 0 0 0 0 0 0 0 0

3102

Extension of Floor on Medicare Work Geographic Adjustment 510 780 290 0 0 0 0 0 0 0 1,580 1,580

3103

Extension of Exceptions for Therapy Caps 520 1,160 500 10 10 20 20 20 20 20 2,200 2,300

3104

Extension of Treatment of Certain Physician Pathology Services 40 80 40 0 0 0 0 0 0 0 160 160

3105

Extension of Ambulance Add-ons 20 10 0 0 0 0 0 0 0 0 30 30

3106

Extension of Long-Term Care Hospital Provisions 30 440 530 140 10 0 0 0 0 0 1,150 1,150

3107

Extension of Physician Fee Schedule Mental Health Add-on 40 20 0 0 0 0 0 0 0 0 60 60

3108

Permitting Physician Assistants to Order Post-Hospital

Extended Care Services

0 0 0 0 0 0 0 0 0 0 0 0

3109

Exemption of Certain Pharmacies from Accreditation Requirements 0 0 0 0 0 0 0 0 0 0 0 0

3110

Part B Special Enrollment for Disabled TRICARE 0 10 20 30 40 40 40 40 50 50 100 320

April 22, 2010 Page 1 of 8 Office of the Actuary, CMS

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

3111

Bone Density Tests 20 40 20 0 0 0 0 0 0 0 80 80

3112

Revision to Medicare Improvement Fund

Part A 0 0 0 0 -15,350 0 0 0 0 0 -15,350 -15,350

Part B 0 0 0 0 -11,890 0 0 0 0 0 -11,890 -11,890

3113

Treatment of Certain Complex Diagnostic Lab Tests 0 0 0 0 0 0 0 0 0 0 0 0

3114

Improved Access for Certified Midwife Services 0 0 0 0 0 0 0 0 0 0 0 0

PART II-RURAL PROTECTIONS

3121

Extend of Outpatient Hold Harmless Provision 50 20 0 0 0 0 0 0 0 0 70 70

3122

Extend Reasonable Cost Reimbursement for Laboratory Services in

Small Rural Hospitals

0 0 0 0 0 0 0 0 0 0 0 0

3123

Extend Rural Community Hospital Demonstration Program 0 0 0 0 0 0 0 0 0 0 0 0

3124

Extend Medicare Dependent Hospital Program 0 0 100 10 0 0 0 0 0 0 110 110

3125

Improvements to Hospital Payments for Low-volume Hospitals 0 100 110 10 0 0 0 0 0 0 220 220

3126

Demonstration Project on Community Health Integration Models 0 0 0 0 0 0 0 0 0 0 0 0

3127

MEDPAC Study on Payments in Rural Areas 0 0 0 0 0 0 0 0 0 0 0 0

3128

Technical Correction to Critical Access Hospital Services 0 0 0 0 0 0 0 0 0 0 0 0

3129

Medicare Rural Hospital Flexibilty Program 0 0 0 0 0 0 0 0 0 0 0 0

PART III-IMPROVING PAYMENT ACCURACY

3131 Payment Adjustment for Home Health Care

Part A 20 -220 -370 -410 -690 -1,140 -1,710 -2,340 -2,700 -2,900 -1,670 -12,460

Part B 20 -260 -450 -510 -860 -1,410 -2,120 -2,900 -3,350 -3,600 -2,060 -15,440

3132

Hospice Reform 0 0 0 0 0 0 0 0 0 0 0 0

3133

Improvement to Medicare DSH Payments 0 0 0 0 -110 -7,100 -9,170 -10,610 -11,180 -11,760 -110 -49,930

3134

Misvalued Codes under Physician Fee Schedule 0 0 0 0 0 0 0 0 0 0 0 0

3135

Equipment Utilization Factor for Advanced Imaging Services 0 -110 -170 -200 -210 -230 -240 -260 -270 -290 -690 -1,980

3136

Revision of Payment for Power Wheelchairs 0 -40 -50 -50 -50 -60 -70 -70 -80 -80 -190 -550

3137

Hospital Wage Index Improvement 260 30 0 0 0 0 0 0 0 0 290 290

3138

Treatment of Certain Cancer Hospitals 0 0 0 0 0 0 0 0 0 0 0 0

3139

Payment for Biosimilar Biological Products

Part B 0 0 0 10 20 -350 -810 -960 -1,150 -1,360 30 -4,600

Part D 0 0 0 10 -20 -80 -130 -150 -180 -220 -10 -770

3140

Hospice Concurrent Care Demonstration 0 0 0 0 0 0 0 0 0 0 0 0

3141

Budget Neutrality in Calculation of Hospital Wage Index Floor 0 0 0 0 0 0 0 0 0 0 0 0

3142

Study on Urban Medicare-dependent Hospitals 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE C-PROVISIONS RELATING TO PART C

3201

Medicare Advantage Payment

Part A 0 -3,170 -5,170 -7,170 -9,000 -10,160 -11,350 -12,480 -13,270 -14,190 -24,510 -85,960

Part B 0 -2,090 -3,400 -4,720 -5,840 -6,700 -7,700 -8,670 -9,560 -10,390 -16,050 -59,070

3202

Benefit Protection and Simplification 0 0 0 0 0 0 0 0 0 0 0 0

3203

Coding Intensity Adjustment During MA Payment Transition 0 0 0 0 0 0 0 0 0 0 0 0

3204

Simplification of Annual Beneficiary Election Periods 0 0 0 0 0 0 0 0 0 0 0 0

3205

Specialized MA Plans for Special Needs Individuals 0 0 0 0 0 0 0 0 0 0 0 0

3206

Extension of Reasonable Cost Contracts 0 0 0 0 0 0 0 0 0 0 0 0

April 22, 2010 Page 2 of 8 Office of the Actuary, CMS

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

3207

Technical Correction to MA Private FFS Plans 0 0 0 0 0 0 0 0 0 0 0 0

3208

Making Senior Housing Facility Demonstration Permanent 0 0 0 0 0 0 0 0 0 0 0 0

3209

Authority to Deny Plan Bids 0 0 0 0 0 0 0 0 0 0 0 0

3210

Development of New Standards for Certain Medigap Plans

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 0 0 0 -50 -70 -80 -90 -90 0 -380

1103

Savings from limits on MA adminstrative costs 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE D-MEDICARE PART D IMPROVEMENTS FOR PRESCRIPTION DRUG PLANS AND MA-PD PLANS

3301 Medicare Coverage Gap Discount Program 0 110 140 160 180 200 240 250 250 310 590 1,840

3302

Improving the Determination of Part D Low-Income Benchmarks 0 90 120 130 140 140 150 170 180 190 480 1,310

3303

Voluntary De Minimus Policy for Low-Income Subsidy Plans 0 20 20 20 20 30 30 30 30 30 80 230

3304

Special Rule for Widows and Widowers Regarding Eligibility for

Low-Income Assistance

0 0 0 0 0 0 0 0 0 0 0 0

3305

Improved Information for Subsidy Eligible Individuals 0 0 0 0 0 0 0 0 0 0 0 0

3306

Funding Outreach and Assistance of Low-Income Programs 45 45 45 0 0 0 0 0 0 0 135 135

3307

Improving Formularies with Respect to Certain Categories or Classes

of Drugs

0 0 0 0 0 0 0 0 0 0 0 0

3308

Reducing the Part D Premium Subsidy for High-Income Beneficiaries 0 -390 -590 -670 -760 -860 -980 -1,110 -1,260 -1,430 -2,410 -8,050

3309

Elimination of Cost Sharing for Certain Dual Eligible Individuals 0 0 0 0 0 0 0 0 0 0 0 0

3310

Reducing Wasteful Dispensing of Outpatient Prescription Drugs 0 0 0 0 0 0 0 0 0 0 0 0

3311

Improved Plan Complaint System 0 0 0 0 0 0 0 0 0 0 0 0

3312

Uniform Exception and Appeals Process 0 0 0 0 0 0 0 0 0 0 0 0

3313

OIG Studies and Reports 0 0 0 0 0 0 0 0 0 0 0 0

3314

Cost Incurred by AIDS Drug Assistance and HIS 0 50 70 70 80 90 100 110 120 130 270 820

9012

Elimination of deduction for Medicare Part D subsidy 0 0 0 40 100 130 170 190 190 200 140 1,020

1101

Closing the Medicare presription drug “donut hole” 0 990 170 380 560 860 1,250 1,760 2,340 3,470 2,100 11,780

—

Reducing growth rate of out-of-pocket threshold 0 0 0 0 40 70 170 240 320 480 40 1,320

1206

Drug rebates for new formulations of existing drugs 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE E-ENSURING MEDICARE SUSTAINABILITY

3401 Market Basket Revisions and Productivity Adjustments

Skilled Nursing Faciltities 0 -30 -440 -1,000 -1,560 -2,160 -2,920 -3,700 -4,530 -5,660 -3,030 -22,000

Long-Term Care Hospitals -10 -50 -120 -220 -340 -450 -590 -780 -980 -1,250 -740 -4,790

Inpatient Rehabilitation Facilities -10 -40 -130 -250 -390 -530 -700 -930 -1,180 -1,510 -820 -5,670

Hospitals Paid Under the Inpatient Prospective Payment System -140 -870 -2,670 -4,940 -7,630 -10,360 -13,940 -18,550 -23,510 -29,990 -16,250 -112,600

Inpatient Psychiatric Facilities--Productivity Adjustments -10 -30 -100 -190 -290 -400 -530 -700 -890 -1,130 -620 -4,270

Inpatient Psychiatric Facilities--Quality Reporting 0 0 0 0 -10 -10 -10 -10 -10 0 -10 -50

Hospice 0 0 0 -220 -450 -690 -980 -1,330 -1,700 -2,120 -670 -7,490

Hospital Outpatient Services 0 0 -820 -1,280 -1,850 -2,460 -3,180 -4,210 -5,490 -6,970 -3,950 -26,260

Durable Medical Equipment 0 -20 -50 -80 -110 -140 -180 -230 -280 -330 -260 -1,420

All Other Part B Fee Schedules, Except Physicians’ Services 0 -100 -300 -520 -750 -1,010 -1,310 -1,680 -2,100 -2,600 -1,670 -10,370

Home Health--Part A 0 -60 -160 -290 -350 -440 -610 -780 -970 -1,230 -860 -4,890

Home Health--Part B 0 -70 -180 -320 -380 -490 -680 -870 -1,080 -1,370 -950 -5,440

April 22, 2010 Page 3 of 8 Office of the Actuary, CMS

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

3402

Temporary Adjustment to Calculation of Part B Premiums

Part B Income (additional premiums) 0 -70 -190 -320 -510 -740 -990 -1,320 -1,700 -2,300 -1,090 -8,140

Part B Benefits 0 0 0 -10 -10 -10 -20 -20 -50 -70 -20 -190

3403

Independent Payment Advisory Board

Part A 0 0 0 0 0 -370 -710 -1,200 -2,010 -3,000 0 -7,290

Part B 0 0 0 0 0 -440 -830 -1,430 -2,420 -3,680 0 -8,800

Part D 0 0 0 0 0 -330 -670 -1,190 -2,090 -3,290 0 -7,570

10323

Medicare Coverage for Individuals Exposed to Environmental Health

Hazards

Part A 10 10 10 10 10 20 20 20 20 20 50 150

Part B 0 10 10 10 10 10 10 10 10 20 40 100

10324

Protection for Frontier States

Part A 0 190 230 250 260 280 300 320 340 370 930 2,540

Part B 0 80 150 170 170 190 200 230 240 280 570 1,710

10325

Delay Implementation of RUG-IV 0 0 0 0 0 0 0 0 0 0 0 0

10326

Pilot Testing for Pay-for-Performance 0 0 0 0 0 0 0 0 0 0 0 0

10327

Improvments to Physician Quality Reporting System 0 0 0 110 120 140 160 0 0 0 230 530

10328

Improvments to Part D Medication Therapy Management 0 0 0 0 0 0 0 0 0 0 0 0

10329

Methodology to Assess Health Plan Value 0 0 0 0 0 0 0 0 0 0 0 0

10330

Modernizing CMS Computer and Data System 0 0 0 0 0 0 0 0 0 0 0 0

10331

Public Reporting of Performance Information 0 0 0 0 0 0 0 0 0 0 0 0

10332

Availability of Medicare Data for Perfomance Measurement 0 0 0 0 0 0 0 0 0 0 0 0

10333

Community Based Collaborative Care Networks 0 0 0 0 0 0 0 0 0 0 0 0

10334

Minority Health 0 0 0 0 0 0 0 0 0 0 0 0

10335

Technical Correction to Hospital Value-based Purchasing 0 0 0 0 0 0 0 0 0 0 0 0

10336

Report on Access to High-quality Dialysis Services 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE F-HEALTH CARE QUALITY IMPROVEMENTS

3501

Health Care Delivery System Research 0 0 0 0 0 0 0 0 0 0 0 0

3502

Support Patient-Sentered Medical Home 0 0 0 0 0 0 0 0 0 0 0 0

3503

Medication Management Services 0 0 0 0 0 0 0 0 0 0 0 0

3504

Regionalized Systems for Emergency Care 0 0 0 0 0 0 0 0 0 0 0 0

3505

Trauma Care Centers 0 0 0 0 0 0 0 0 0 0 0 0

3506

Shared Decisionmaking 0 0 0 0 0 0 0 0 0 0 0 0

3507

Prescription Drug Benefit and Risk Information 0 0 0 0 0 0 0 0 0 0 0 0

3508

Demonstration to Integrate Quality Care and Patient Safety 0 0 0 0 0 0 0 0 0 0 0 0

3509

Improving Woman's Health 0 0 0 0 0 0 0 0 0 0 0 0

3510

Patient Navigator Program 0 0 0 0 0 0 0 0 0 0 0 0

3511

Authorization of Appropriations 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL, TITLE III

1,415 -3,235 -12,685 -22,020 -58,080 -48,770 -62,690 -77,850 -92,760 -110,160 -94,605 -486,835

April 22, 2010 Page 4 of 8 Office of the Actuary, CMS

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

TITLE IV-PREVENTION OF CHRONIC DISEASE AND IMPROVING PUBLIC HEALTH

SUBTITLE A-MODERNINZING DISEASE PREVENTION AND PUBLIC HEALTH SYSTEMS

4001-4004

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE B-INCREASING ACCESS TO CLINICAL PREVENTIVE SERVICES

4103

Annual Wellness Visit Providing a Personalized Plan 0 230 380 380 390 420 470 530 590 650 1,380 4,040

4104

Removing Barriers to Preventive Services 0 110 190 200 210 230 250 270 300 330 710 2,090

4105

Evidence-Based Coverage of Preventive Services -60 -140 -160 -170 -170 -180 -200 -220 -240 -260 -700 -1,800

SUBTITLE C-CREATING HEALTHIER COMMUNITIES

4201-4207

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE D-SUPPORT FOR PREVENTION AND PUBLIC HEALTH INNOVATION

4301-4306

0 0 0 0 0 0 0 0 0 0 0 0

Additional Provisions 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE E-MISCELLENEOUS PROVISIONS

4401-4402

0 0 0 0 0 0 0 0 0 0 0 0

-60 200 410 410 430 470 520 580 650 720 1,390 4,330

TITLE V-HEALTH CARE WORKFORCE

SUBTITLE A-PURPOSE AND DEFINITIONS

5001-5002

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE B-INNOVATIONS IN HEALTH CARE WORKFORCE

5101-5103

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE C- INCREASING THE SUPPLY OF THE HEALTH CARE WORKFORCE

5201-5210

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE D-EHANCING HEALTH CARE WORKFORCE EDUCATION AND TRAINING

5301-5315

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE E-SUPPORTING THE EXISTING HEALTH CARE WORKFORCE

5401-5405

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE F-STRENGTHENING PRIMARY CARE AND OTHER WORKFORCE IMPROVEMENTS

5501

Expanding Access to Primary Care/General Surgery Services 0 170 260 260 260 270 110 0 0 0 950 1,330

5502

Medicare Federally Qualified Health Center Improvements 0 10 10 20 20 70 90 100 100 110 60 530

5503

Distribution of Additional Residency Positions 0 0 0 0 0 0 0 0 0 0 0 0

5504

Counting Resident Time in Outpatient Setting 0 0 0 0 0 0 0 0 0 0 0 0

5505

Rules for Counting Resident Time for Didactic/Scholarly Activities 0 0 0 0 0 0 0 0 0 0 0 0

5506

Preservation of Resident Cap Positions 0 0 0 0 0 0 0 0 0 0 0 0

5507

Demonstration to Address Health Professions Workforce Needs 0 0 0 0 0 0 0 0 0 0 0 0

5508

Increasing Teaching Capacity 0 0 0 0 0 0 0 0 0 0 0 0

5509

Graduate Nurse Education Demonstration Program 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL, TITLE IV

April 22, 2010 Page 5 of 8 Office of the Actuary, CMS

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

SUBTITLE G-IMPROVING ACCESS TO HEALTH CARE SERVICES

5601-5605

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE H-GENERAL PROVISIONS

5701 Reports 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL, TITLE V

0 180 270 280 280 340 200 100 100 110 1,010 1,860

TITLE VI-TRANSPARENCY AND PROGRAM INTEGRITY

SUBTITLE A-PHYSICIAN OWNERSHIP AND OTHER TRANSPARENCY

6001

Limitation on Medicare Exception to the Prohibition on Certain

Physician Referrals for Hospitals

0 0 0 0 0 0 0 0 0 0 0 0

6002 Transparency Reports on Physician Ownership 0 0 0 0 0 0 0 0 0 0 0 0

6003 Disclosure Requirements for in-Office Ancillary Services 0 0 0 0 0 0 0 0 0 0 0 0

6004 Prescription Drug Sample Transparency 0 0 0 0 0 0 0 0 0 0 0 0

6005 Pharmacy Benefit Managers Transparency Requirements 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE B-NURSING HOME TRANSPARENCY AND IMPROVEMENT

6101-6121

0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE C-NATIONWIDE PROGRAM FOR BACKGROUND CHECKS ON DIRECT PATIENT ACCESS EMPLOYEES OF LONG-TERM CARE FACILITIES AND PROVIDERS

6201 Nationwide Program for Background Checks 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE D-PATIENT CENTERED OUTCOMES RESEARCH

6301

Patient Centered Outcomes Research 0 0 0 0 0 0 0 0 0 0 0 0

6302

Federal Coordinating Council for CER 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE E-MEDICARE, MEDICAID, AND CHIP PROGRAM INTEGRITY

6401

Provider Screening and Other Enrollment Requirements

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B -10 -20 -20 -30 -30 -30 -30 -30 -40 -40 -110 -280

6402

Enhanced Program Integrity Provisions

Part A 0 0 -10 -20 -30 -30 -30 -40 -40 -40 -60 -240

Part B 0 0 -10 -10 -20 -20 -20 -20 -20 -20 -40 -140

6403

Elimination of Duplication between Data Banks

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 0 0 0 0 0 0 0 0 0 0

6404

Maximum Period for Submission of Medicare Claims to Not More

Than 12 Months

Part A 0 60 70 70 80 80 90 100 100 110 280 760

Part B 0 50 50 50 50 60 60 70 70 80 200 540

6405

Physicians Required to Be Enrolled Physicians

Part A -10 -20 -20 -20 -30 -30 -30 -30 -30 -40 -100 -260

Part B -30 -50 -50 -50 -60 -60 -60 -70 -70 -80 -240 -580

April 22, 2010 Page 6 of 8 Office of the Actuary, CMS

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

6406

Documentaion on Referrals to Programs at High Risk of Waste and

Abuse

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 0 0 0 0 0 0 0 0 0 0

6407

Face to Face Encounter with Patient Required Before Physician May

Certify for HHA or DME

Part A -50 -70 -70 -80 -80 -90 -100 -100 -110 -120 -350 -870

Part B -70 -110 -120 -130 -140 -150 -160 -170 -180 -190 -570 -1,420

6408

Enhanced Penalties

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 0 0 0 0 0 0 0 0 0 0

6409

Medicare Self-referral Disclosure Protocal

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 0 0 0 0 0 0 0 0 0 0

6410

Adjustments to DME, Prosthetics, Orthotics, and Supplies

Competitive Acquisition Program

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 -10 -20 -20 -20 -20 -80 -120 -130 -140 -70 -560

6411

Expansion of Recovery Audit Contractor (RAC) program

Part A 0 -20 -30 -40 -40 -40 -50 -50 -50 -60 -130 -380

Part B 0 0 -10 -10 -10 -10 -10 -10 -10 -10 -30 -80

Part D 0 -10 -20 -30 -30 -30 -30 -40 -40 -50 -90 -280

1301

Limit MH Center Providers

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 -10 -10 -20 -20 -20 -20 -20 -30 -40 -150

1302

Repeal Limits on Claims Review

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 0 0 0 -10 -10 -10 -10 -10 0 -50

1303

CMS-IRS Data Match to Find Fraudulent Providers

Part A 0 0 0 0 0 -10 -10 -10 -10 -10 0 -50

Part B 0 0 0 -20 -60 -110 -130 -140 -150 -160 -80 -770

1304

Funding for Fraud and Abuse Activities

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 0 0 0 0 0 0 0 0 0 0

1305

Enhanced Claims Review of New DME Providers

Part A 0 0 0 0 0 0 0 0 0 0 0 0

Part B 0 0 -10 -10 -10 -10 -10 -20 -20 -20 -30 -110

SUBTITLE G-ADDITIONAL PROGRAM INTEGRITY PROVISIONS

6601

Prohibition on false Statements and Representations 0 0 0 0 0 0 0 0 0 0 0 0

6602

Clarifying Definition 0 0 0 0 0 0 0 0 0 0 0 0

6603

Development of Model Uniform Report Form 0 0 0 0 0 0 0 0 0 0 0 0

6604

Applicability of State Law to Combat Fraud and Abuse 0 0 0 0 0 0 0 0 0 0 0 0

6605

Administrative Summary Cease and Desist Orders 0 0 0 0 0 0 0 0 0 0 0 0

April 22, 2010 Page 7 of 8 Office of the Actuary, CMS

Table 3—Estimated Medicare Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended

(Amounts in millions)

Fiscal year

Total,

Sec.

Provision 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

6606

MEWA Plan Registration 0 0 0 0 0 0 0 0 0 0 0 0

6607

Permitting Evidentiary Privilege and Confidential Communications 0 0 0 0 0 0 0 0 0 0 0 0

Additional Provisions 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE H-ELDER JUSTICE ACT

6701

Short Title of Subtitle 0 0 0 0 0 0 0 0 0 0 0 0

6702

Definitions 0 0 0 0 0 0 0 0 0 0 0 0

6703

Elder Justice 0 0 0 0 0 0 0 0 0 0 0 0

SUBTITLE I-SENSE OF THE SENATE REGARDING MEDICAL MALPRACTICE

6801

Sense of the Senate Regarding Medical Malpractice 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL, TITLE VI

-170 -200 -280 -360 -450 -530 -630 -710 -760 -830 -1,460 -4,920

TITLE IX-REVENUE PROVISIONS

9008

Fees on Brand-Name Pharmaceutical Manufacturers & Importers 0 -1,650 -2,590 -2,720 -2,850 -2,900 -2,900 -3,640 -3,970 -3,060 -9,810 -26,280

9015

Additional hospital insurance tax on high-income taxpayers¹ 0 0 0 -1,936 -8,090 -8,901 -9,735 -10,580 -11,504 -12,484 -10,026 -63,230

TOTAL, TITLE IX

0 -1,650 -2,590 -4,656 -10,940 -11,801 -12,635 -14,220 -15,474 -15,544 -19,836 -89,510

TOTAL IMPACT, III-VI and IX 1,185 -4,705 -14,875 -26,346 -68,760 -60,291 -75,235 -92,100 -108,244 -125,704 -113,501 -575,075

¹ Estimates prepared by the Office of the Chief Actuary, Social Security Administration.

Notes:

The effects of the managers' amendments, in Title X of P.L. 111-148 and in P.L. 111-152, on provisions in other titles have been incorporated with the estimates shown for those titles.

New proposals included in Title X have been grouped with the corresponding category of proposal in the estimates shown for earlier titles.

The estimates for provisions affecting Medicare Part B are net of premium offset.

The estimates for Medicare provisions that affect fee-for-service benefits also reflect interactions with payments to managed care plans.

April 22, 2010 Page 8 of 8 Office of the Actuary, CMS

Table 4— Estimated Federal Medicaid and CHIP Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended, in millions

Fiscal Year

Total,

Sec.

Provision

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

Patient Protection and Affordable Care Act (P.L. 111-148)

TITLE II—ROLE OF PUBLIC PROGRAMS

Subtitle A—Improved Access to Medicaid

2001

Medicaid coverage for the lowest income populations

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

Impact of sections not affecting Medicaid expansion

$0 $0 $0 $30 $1,760 $3,010 $3,800 $4,180 $4,960 $5,780 $1,790 $23,520

2002

Income eligibility for nonelderly determined using modified gross income

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

2003

Requirement to offer premium assistance for employer-sponsored insurance

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

2004

Medicaid coverage for former foster care children

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

2005

Payments to territories

0 191 764 764 930 930 930 930 930 930 2,648 7,300

2006

Special adjustment to FMAP for major disaster recovery

0 255 90 0 0 0 0 0 0 0 345 345

2007

Medicaid Improvement Fund rescission

0 0 0 0 -100 -150 -150 -150 -150 0 -100 -700

Subtitle B—Enhanced Support for CHIP

2101

Additional federal financial participation for CHIP

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

2102

Technical corrections

0 0 0 0 0 0 0 0 0 0 0 0

Subtitle C—Enrollment Simplification

2201

Enrollment simplificiation and coordination with State health insurance

exchanges

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

2202

Permitting hospitals to make presumptive eligibility determinations for all

Medicaid eligible populations

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

Subtitle D—Improvements to Medicaid services

2301

Coverage for freestanding birth center services

0 0 0 0 0 0 0 0 0 0 0 0

2302

Concurrent care for children

15 15 15 15 20 20 20 25 25 25 80 195

2303

State eligibility option for family planning services

1 0 0 -2 -4 -6 -9 -12 -15 -18 -5 -65

2304

Clarification of definition of medical assistance

0 0 0 0 0 0 0 0 0 0 0 0

Subtitle E—New State Options for Long-term Services & Supports

2401

Community First Choice Option

0 0 820 1,060 1,815 2,585 3,520 3,940 4,630 5,210 3,695 23,580

2402

Removal of barriers to providing home and community-based services

25 50 80 120 170 190 215 240 270 300 445 1,660

2403

Money Follows the Person Rebalancing Demonstration

0 0 450 450 450 450 450 0 0 0 1,350 2,250

2404

Protection for recipients of home and community-based services against

spousal impoverishment

0 0 0 0 125 190 215 240 270 75 125 1,115

2405

Funding to expand State Aging and Disability Resource Centers

10 10 10 10 10 0 0 0 0 0 50 50

2406

Sense of the Senate regarding long-term care

0 0 0 0 0 0 0 0 0 0 0 0

Subtitle F—Medicaid Prescription Drug Coverage

2501(a)(1)

Increase minimum rebate percentage for brand drugs

-240 -440 -440 -470 -500 -530 -560 -590 -630 -670 -2,090 -5,070

2501(a)(2)

Recapture of total savings

-230 -610 -680 -720 -770 -820 -870 -920 -980 -1,040 -3,010 -7,640

2501(b)

Increase rebate percentage for generic drugs

-20 -30 -30 -30 -40 -40 -40 -40 -50 -50 -150 -370

2501(c)

Extension of prescription drug discounts to enrollees of Medicaid managed

care organizations

-580 -720 -720 -770 -820 -870 -930 -990 -1,040 -1,100 -3,610 -8,540

2501(d)

Rebates on new drug formulations

-110 -210 -210 -220 -230 -250 -260 -280 -290 -310 -980 -2,370

2501(e)

Maximum rebate amount

0 0 0 0 0 0 0 0 0 0 0 0

2501(f)

Conforming Amendment

0 0 0 0 0 0 0 0 0 0 0 0

2502

Elimination of exclusion of coverage of certain drugs

0 0 0 0 25 30 30 40 45 45 25 215

April 22, 2010 Page 1 of 4 Office of the Actuary, CMS

Table 4— Estimated Federal Medicaid and CHIP Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended, in millions

Fiscal Year

Total,

Sec.

Provision

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

2503

Providing adequate pharmacy reimbursement

0 135 275 290 310 325 345 370 390 415 1,010 2,855

Subtitle G—Medicaid Disproportionate Share Hospital Payments

2551

Disproportionate share hospital payments

0 0 0 0 -500 -600 -600 -1,800 -5,000 -5,600 -500 -14,100

Subtitle H—Dual Eligibles

2601

5-year period for demonstration projects

0 0 0 0 0 0 0 0 0 0 0 0

2602

Providing Federal coverage and payment coordination for low-income

Medicare beneficiaries

0 0 0 0 0 0 0 0 0 0 0 0

Subtitle I—Medicaid Quality

2701

Adult health quality measures

40 50 60 70 80 0 0 0 0 0 300 300

2702

Payment Adjustment for Health Care-Acquired Conditions

0 -1 -4 -5 -5 -5 -6 -6 -7 -7 -15 -46

2703

State option to provide health homes for enrollees with chronic conditions

0 35 90 115 145 175 150 135 135 135 385 1,115

2704

Demonstration project to evaluate integrated care around a hopitalization

0 0 0 0 0 0 0 0 0 0 0 0

2705

Medicaid Global Payment System Demonstration Project

0 0 0 0 0 0 0 0 0 0 0 0

2706

Pediatric Accountable Care Organization Demonstration Project

0 0 0 0 0 0 0 0 0 0 0 0

2707

Medicaid emergency psychiatric demonstration project

15 15 15 15 15 0 0 0 0 0 75 75

Subtitle J—Improvements to the Medicaid and CHIP Payment and Access Commission (MACPAC)

2801

MACPAC assessment of policies affecting all Medicaid beneficiaries

0 0 0 0 0 0 0 0 0 0 0 0

Subtitle K—American Indians and Alaska Natives

2901

Special rules relating to Indians

1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/

2902

Elimination of sunset for reimbursement for all Medicare Part B services

furnished by certain Indian hospitals and clinics

0 20 20 20 30 30 30 30 30 30 90 240

TITLE III—IMPROVING THE QUALITY AND EFFICIENCY OF HEALTH CARE

Subtitle B—Improving Medicare for Patients and Providers

PART III—Improving payment accuracy

3139

Payment for biosimilar biological products - Medicaid impact

0 0 0 0 -10 -30 -50 -60 -80 -90 -10 -320

TITLE IV—PREVENTION OF CHRONIC DISEASE AND IMPROVING PUBLIC HEALTH

Subtitle A—Modernizing Disease prevention and Public Health Systems

4004(i)

Public awareness of preventive and obesity-related services

0 0 0 0 0 0 0 0 0 0 0 0

Subtitle B—Increasing Access to clinical Preventive Services

4101

School-based health centers

155 200 105 115 125 135 145 160 175 190 700 1,505

4106

Improving access to preventive services for eligible adults

0 0 0 6 9 9 10 11 11 12 15 68

4107

Coverage of comprehensive tobacco cessation services for pregnant women

0 0 0 0 -10 -10 -10 -10 -10 -20 -10 -70

4108

Incentives for prevention of chronic disease

0 20 20 20 20 20 0 0 0 0 80 100

Subtitle D—Support for Prevention and Public Health Innovation

4302(b)

Addressing health care disparities in Medicaid and CHIP

0 0 0 0 0 0 0 0 0 0 0 0

4306

Funding for Childhood Obesity Demonstration Project

5 5 5 5 5 0 0 0 0 0 25 25

April 22, 2010 Page 2 of 4 Office of the Actuary, CMS

Table 4— Estimated Federal Medicaid and CHIP Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended, in millions

Fiscal Year

Total,

Sec.

Provision

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

TITLE VI—TRANSPARENCY AND PROGRAM INTEGRITY

Subtitle E—Medicare, Medicaid & CHIP Program Integrity Provisions

6201

Background checks for certain employees of LTC facilities

0 30 20 30 30 30 30 30 30 30 110 260

6401

Provider screening and other enrollment requirements under Medicare,

Medicaid & CHIP

0 0 0 0 0 0 0 0 0 0 0 0

6402

Enhanced Medicare and Medicaid program integrity provisions

0 0 0 0 0 0 0 0 0 0 0 0

6403

Elimination of duplication between the Healthcare Integrity and Protection

Data Bank and the National Practitioner Data Bank

0 0 0 0 0 0 0 0 0 0 0 0

6407

Face to face encounter with patient required before physicians may certify

eligibility for home health services or durable medical equipment under

Medicare

0 0 0 0 0 0 0 0 0 0 0 0

6408

Enhanced penalties

0 0 0 0 0 0 0 0 0 0 0 0

6411

Expansion of the Recovery Audit Contractor Program

0 -80 -170 -250 -310 -330 -360 -390 -420 -450 -810 -2,760

Subtitle F—Additional Medicaid Program Integrity Provisions

6501

Termination of provider participation under Medicaid if terminated under

Medicare or other State plan

0 0 0 0 0 0 0 0 0 0 0 0

6502

Medicaid exclusion from participation relating to certain ownership,

control, and management affiliations

0 0 0 0 0 0 0 0 0 0 0 0

6503

Billing agents, clearninghouses, or other alternate payees required to

0 0 0 0 0 0 0 0 0 0 0 0

6504

Requirement to report expanded set of data elements under MMIS to detect

fraud and abuse

0 0 0 0 0 0 0 0 0 0 0 0

6505

Prohibition on payments to institutions or entities located outside of the

United States

0 0 0 0 0 0 0 0 0 0 0 0

6506

Overpayments

260 480 -65 -70 -75 -80 -85 -90 -95 -105 530 75

6507

Mandatory State use of national correct coding initiative

-10 -25 -40 -45 -55 -75 -85 -90 -95 -100 -175 -620

6508

General effective date

0 0 0 0 0 0 0 0 0 0 0 0

TITLE VII—IMPROVING ACCESS TO INNOVATIVE MEDICAL THERAPIES

Subtitle B—More Affordable Medicines for Children and Underserved Communities

7101(d)

Expanded participation in 340B programs - Medicaid credits

2/ 2/ 2/ 2/ 2/ 2/ 2/ 2/ 2/ 2/ 2/ 2/

TITLE X—STRENGTHENING QUALITY, AFFORDABLE HEALTH CARE FOR ALL AMERICANS

Subtitle B—Provisions Relating to Title II

Part I—Medicaid and CHIP

10202

Incentives for States to offer home and community-based services as a long-

term care alternative to nursing homes

0 0 800 910 1,030 260 0 0 0 0 2,740 3,000

SUBTOTAL, P.L. 111-148

-664 -605 1,279 1,463 3,675 4,593 5,875 4,903 3,040 3,617 5,149 27,177

April 22, 2010 Page 3 of 4 Office of the Actuary, CMS

Table 4— Estimated Federal Medicaid and CHIP Costs (+) or Savings (–) under the Patient Protection and Affordable Care Act, as Enacted and Amended, in millions

Fiscal Year

Total,

Sec.

Provision

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010-14 2010-19

Health Care and Education Reconciliation Act of 2010 (P.L. 111-152)

TITLE I—Coverage Medicare, Medicaid, and Revenues

Subtitle C—Medicaid

1202

Payment to primary care physicians

0 0 0 3,670 5,460 1,450 0 0 0 0 9,130 10,580

SUBTOTAL, P.L. 111-152

0 0 0 3,670 5,460 1,450 0 0 0 0 9,130 10,580

Interaction - Prescription Drugs

-190 -250 -270 -280 -300 -320 -330 -360 -390 -410 -1,290 -3,100

Interaction - Medicaid Expansion

0 0 0 0 200 -90 -270 -300 -320 -350 200 -1,130

Interaction with Medicare Premium Provisions

0 -70 -220 -320 -400 -520 -670 -840 -1,010 -1,140 -1,010 -5,190

TOTAL, P.L. 111-148 and P.L. 111-152, with interactions

-854 -925 789 4,533 8,635 5,113 4,605 3,403 1,320 1,717 12,179 28,337

Included with Title I impacts.

Insufficient detail for estimation.

April 22, 2010 Page 4 of 4 Office of the Actuary, CMS

Table 5 — Estimated Increases (+) or Decreases (–) in National Health Expenditures under the Patient Protection and Affordable Care Act, as Enacted and Amended, in billions

Calendar Year

Prior Law Baseline

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total, CY

2010-2019

Total National Health Expenditures (NHE) $ 2,632.2 $ 2,778.7 $ 2,944.4 $ 3,125.4 $ 3,325.5 $ 3,551.5 $ 3,798.5 $ 4,067.7 $ 4,358.8 $ 4,670.6 $ 35,253.3

Medicare 515.5 550.5 591.0 634.1 679.7 732.1 790.4 857.2 930.9 1,010.9 7,292.3

Medicaid/CHIP 436.1 473.0 512.4 553.4 593.9 641.7 696.6 755.9 821.7 893.2 6,377.9

Federal 282.2 277.9 292.7 315.9 337.8 364.3 395.0 427.9 464.6 504.5 3,662.8

State & Local 153.9 195.1 219.6 237.6 256.1 277.4 301.5 328.0 357.1 388.7 2,715.1

Other Public 307.7 325.1 343.9 364.6 386.6 410.5 436.4 464.0 493.2 523.6 4,055.5

Out of Pocket 285.1 297.7 308.9 322.3 340.3 359.4 379.1 400.2 422.8 446.7 3,562.4

Employer-Sponsored Private Health Insurance 847.0 879.0 919.3 966.0 1,024.5 1,088.4 1,156.0 1,228.7 1,305.6 1,387.3 10,801.8

Other Private Health Insurance* 49.2 51.0 54.6 57.7 59.4 61.5 63.5 65.9 68.2 70.6 601.7

Other Private† 191.6 202.4 214.5 227.3 241.1 257.8 276.4 296.0 316.4 338.3 2,561.8

NHE as percent of Gross Domestic Product (GDP)‡ 17.8% 17.9% 18.1% 18.3% 18.6% 19.0% 19.4% 19.8% 20.3% 20.8%

Calendar Year

New Law — PPACA

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total, CY

2010-2019

Total National Health Expenditures (NHE) $ 2,636.4 $ 2,774.4 $ 2,932.7 $ 3,101.5 $ 3,358.8 $ 3,615.9 $ 3,875.2 $ 4,139.6 $ 4,413.1 $ 4,716.5 $ 35,564.0

Medicare 516.0 545.7 577.1 604.8 626.1 682.1 726.1 778.1 836.4 897.9 6,790.2

Medicaid/CHIP 434.2 471.4 513.3 557.7 657.3 716.6 779.4 832.7 900.8 977.9 6,841.4

Federal 281.2 277.4 294.5 321.4 398.3 435.7 478.2 503.6 543.8 588.7 4,122.7

State & Local 153.0 194.1 218.9 236.3 259.0 280.8 301.2 329.1 357.1 389.2 2,718.7

Other Public 312.3 325.2 344.0 364.9 381.7 406.2 434.6 463.4 493.5 523.6 4,049.4

Out of Pocket 285.1 297.9 308.6 321.6 313.6 323.9 334.7 352.5 381.4 405.8 3,325.1

Employer-Sponsored Private Health Insurance 848.2 881.0 921.3 968.3 1,038.8 1,112.3 1,160.7 1,212.2 1,259.7 1,336.1 10,738.7

Other Private Health Insurance* 49.3 50.9 54.1 57.0 14.9 14.9 14.5 14.2 13.9 13.6 297.4

Other Private† 191.4 202.3 214.3 227.2 234.8 251.9 272.8 293.4 314.5 335.6 2,538.1

Exchanges — — — — 91.7 107.9 152.4 193.1 212.8 225.8 983.7

NHE as percent of Gross Domestic Product (GDP)‡ 17.8% 17.9% 18.0% 18.2% 18.8% 19.3% 19.8% 20.2% 20.5% 21.0%

Table 5, continued — Estimated Increases (+) or Decreases (–) in National Health Expenditures under the Patient Protection and Affordable Care Act, as Enacted and Amended, in billions

Calendar Year

Impact of PPACA

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total, CY

2010-2019

Total National Health Expenditures (NHE) $ 4.2 -$ 4.3 -$ 11.7 -$ 24.0 $ 33.4 $ 64.4 $ 76.7 $ 71.9 $ 54.3 $ 45.8 $ 310.8

Medicare 0.4 -4.8 -13.9 -29.4 -53.6 -50.0 -64.3 -79.1 -94.5 -113.0 -502.1

Medicaid/CHIP -1.9 -1.5 1.0 4.3 63.4 74.8 82.8 76.8 79.2 84.7 463.5

Federal -1.1 -0.5 1.7 5.6 60.4 71.4 83.2 75.7 79.2 84.2 459.9

State & Local -0.8 -1.0 -0.8 -1.3 2.9 3.5 -0.4 1.1 0.0 0.5 3.6

Other Public 4.6 0.1 0.2 0.3 -4.9 -4.3 -1.9 -0.6 0.3 0.0 -6.1

Out of Pocket -0.1 0.2 -0.3 -0.7 -26.7 -35.5 -44.4 -47.6 -41.3 -40.9 -237.3

Employer-Sponsored Private Health Insurance 1.2 2.0 2.0 2.3 14.3 24.0 4.8 -16.4 -45.9 -51.2 -63.1

Other Private Health Insurance* 0.1 -0.1 -0.4 -0.7 -44.5 -46.5 -49.1 -51.7 -54.3 -57.0 -304.2

Other Private† -0.2 -0.2 -0.2 -0.1 -6.3 -5.9 -3.7 -2.6 -2.0 -2.7 -23.7

Exchanges — — — — 91.7 107.9 152.4 193.1 212.8 225.8 983.7

NHE as percent of Gross Domestic Product (GDP)‡ 0.0% 0.0% -0.1% -0.1% 0.2% 0.3% 0.4% 0.3% 0.3% 0.2%

*In the prior-law baseline, other private health insurance includes private Medicare supplemental coverage and individual coverage. In the new-law estimates, other private health insurance

includes only those with Medicare supplemental coverage.

†In the NHE accounts, other private spending includes philanthropic giving and income from non-patient sources, such as parking and investment income, for institutional providers.

‡Based on Gross Domestic Product (GDP) projections that accompanied the February 24, 2009 NHE projections release for 2008-2018.

(http://www.cms.hhs.gov/NationalHealthExpendData/downloads/proj2008.pdf )

Source: Centers for Medicare & Medicaid Services, Office of the Actuary.

April 22, 2010