Health Care Spending Under Reform

The impact on spending by government and employers has been a major issue in the current health reform debate. Supported by the Robert Wood Johnson Foundation and prepared by researchers at the Urban Institute, this brief estimates the cost and coverage implications of the key provisions of the bill passed by the House of Representatives in November 2009.

Currently, the medical needs of uninsured people put significant strain on the health care system because, even without insurance coverage, they receive billions of dollars worth of “uncompensated” care—medical care that is either freely donated by providers or results in an unpaid bill. Under the House reform bill, the authors estimate that 34 million fewer people would be uninsured.

The cost of uncompensated care provided to the uninsured in a single year would decrease from $61 billion to $25 billion. Assuming that about three-quarters of uncompensated care is financed by federal, state and local governments (through Medicare and Medicaid Disproportionate Share Hospital payments and other provisions), the authors estimate that the $89 billion increase in government costs in a single year (due to the expansion of Medicaid and subsidies to employers and individuals) could be significantly offset, by perhaps as much as $27 billion due to decreased spending on uncompensated care.

The authors also estimate that the change in employers’ net costs under the House reform bill would be relatively modest—an increase of just 2.9 percent over the current system. Yet among small employers, the authors estimate that net costs would decrease due to a combination of factors, including employer subsidies, the introduction of health insurance exchanges as a more efficient vehicle for small group coverage, the expansion of Medicaid coverage to some low-income employees, and exemptions from penalties for not offering health insurance coverage. Thus, the House bill would reduce the disadvantages that small firms currently face in providing health insurance to their employees, a key objective of reform.