Movement on Medicare


For years, lawmakers, policy experts and journalists have fretted about the explosive growth of health care spending. Would the United States ever find a way to “bend the curve” on economic charts that projected seemingly endless growth in health care’s share of the gross domestic product and, consequently, uncontrolled expansion of federal spending on health-care entitlement programs?

Lately, though, the situation has quietly been improving — as the most recent government data released last week again confirmed. The trustees of Social Security and Medicare reported that the latter program should have enough money in its hospital insurance trust fund to last through 2030 — four years longer than they projected last year and 13 years longer than projected in 2009. The Congressional Budget Office’s updated estimate of long-term federal spending on major health programs (Medicare, Medicaid, the Children’s Health Insurance Program and Obamcare health care exchange subsidies) would equal 8 percent of GDP in 2039 — 1.6 percentage points, or about 15 percent, less than the 9.6 percent the agency projected in 2010. It’s now 4.8 percent of GDP.

In short, the curve may not have bent yet, but it is flattening. The question of precisely how and why is a contentious one, like almost every other issue in Washington. Some of the Medicare slowdown may be attributable to curbs on hospital readmissions caused by President Barack Obama’s health care reform, but the law is still too new to explain all or even most of the cost moderation. Indeed, economists see the slowdown in health spending, public and private, as a puzzle, though the growth rate does seem to ebb and flow with overall economic growth — which cratered in 2009 and has been sluggish since. Economist Louise Sheiner of the Brookings Institution argues in a forthcoming working paper that the business cycle accounts for much of the recent slowdown in overall health spending — but not what she calls the “dramatic” easing of Medicare spending specifically.

The real issue is how to respond to this unexpected and unexplained good news. No doubt the path of least resistance, politically, would be to pocket the recent gains in Medicare’s life expectancy and postpone systemic reform, perhaps on the theory that such changes must await perfect understanding of the cost-moderation trend. On the other hand, if the sustainability of federal health programs is a slightly less daunting problem than it seemed, it might be less painful to solve, too — so why not get on with it? The CBO, the Simpson-Bowles deficit commission and a host of other experts have outlined incremental reforms that would make federal health programs more efficient and save tens of billions of dollars without radical systemic change.

Medicare’s patchwork of cost-sharing requirements, for example, neither encourages participants to limit consumption of services nor shields them from catastrophic expenses. Many therefore buy “Medigap” coverage that eliminates most out-of-pocket costs, further reducing their incentive to limit unnecessary consumption. The CBO has estimated that uniform cost-sharing and restricting Medigap plans could save $92.5 billion over 10 years. As the latest data show, every health dollar we save today helps ensure that resources will be available to meet the needs of tomorrow.