The near-term outlook for the healthcare economy under President Bush's second administration is ominous and likely to get worse, most analysts believe. But they also say the situation wouldn't have been much different if Sen. John Kerry had won the election.
While Bush hasn't shown an intention to do more in his second term to mitigate healthcare's cost spiral than he did in the first four years, Kerry's ambitious plans were not likely to have gotten past a Republican-controlled Congress.
But the threat of funding cuts to Medicare-a huge source of revenue for healthcare providers and expenditures for the federal government-continues to be a concern. If the Bush administration were to cut Medicare spending to help close a projected $2.3 trillion deficit in the next decade, healthcare providers would likely bear a big part of the reductions, as they did with the passage of the Balanced Budget Act of 1997.
In the current environment, though, economists say there haven't been indications that healthcare funding will vary drastically for better or worse. Not far down the road, however, that could change. Medicare is a prime target because it eats up a large share of government expenditures and is set to grow even more in 2006 when a new Medicare prescription drug benefit begins.
Other trends, such as the coming retirement of the baby boom generation, the growing number of uninsured in the country and a limited likelihood that federal-level tort reform will be passed, point to continued economic pressure on healthcare providers.
"There's no good news here," says Tom Getzen, professor and director of healthcare finance programs at Temple University. It's not a Democratic or Republican issue; it's a matter of there not being enough money to keep Medicare as it now operates afloat, he says. "Everybody's freaking about it."
What's concerning people are projections that Medicare's hospital insurance trust fund will go insolvent in about 14 years, with demographic changes limiting the government's choices for getting out of the jam. There's no way to avoid the looming retirement of the baby boomers, which will begin in just five years.
"It's a totally open-ended entitlement ... without funding sources," says Sam Peltzman, the University of Chicago's Ralph and Dorothy Keller distinguished service professor of economics. "The fiscal consequences of this are staggering."
Though dealing with that issue largely will be another president's problem, Bush will have to begin to address the problem toward the end of his term, economists say. For now, though, no action on Medicare is expected. "I don't see a big change in Medicare payments" in the immediate future, says Rick Gundling, vice president of product development for the Healthcare Financial Management Association.
After 2006, the last year the new Medicare law mandates a full inflationary increase, cuts are a definite possibility, some analysts say. A few factors are at play, according to Larry Goldberg, a health policy analyst and director in the Washington office of Deloitte & Touche.
If hospital net profit margins continue to show gains, Congress may be less sympathetic when lawmakers request rate increases, Goldberg says. In addition, the solvency of the Medicare trust fund (now expected to go bust in 2019) and the overall growth rate of Medicare will factor into the decision, he predicts.
Physician payments under Medicare may be in peril once temporary adjustments to protect them expire, which happens in 2006. Congress must then make a decision about whether and how to change the growth-rate formula used to calculate doctors' Medicare payments. If the formula is left untouched, physicians are likely to see their payments cut-perhaps by as much as 7%.
"That situation is untenable for Congress because physicians have demonstrated that they will not take or treat new or existing Medicare patients if they're not happy with the payment rates," Goldberg says.
"That scares Congress because beneficiaries won't get access they need, and beneficiaries vote and it becomes political dynamite."
"There's a rising level of concern" among not-for-profit healthcare debt issuers that the government will turn to Medicare as a means to cut the deficit, says Bruce Gordon, a senior vice president for ratings agency Moody's Investors Service.
Medicare "is the biggest single payer for just about every hospital we rate," he says.
Feeding that concern is the question mark surrounding how the federal government will pay for increased costs of providing Medicare's expanded prescription drug benefit, which was part of the Medicare Modernization Act of 2003. The unknown cost of that benefit-the CMS now says it may be $534 billion in its first 10 years and the Congressional Budget Office projects the second 10 years at $1 trillion-has economists wondering why it was added when Medicare funding already is an issue.
"We have the estimates, but we really don't know how much it's going to cost," says Vivian Ho, associate professor and holder of the James A. Baker III Institute Chair in Health Economics at Rice University.
And the headline issue of hospitals treating uninsured patients isn't likely to get much attention, keeping pressure on healthcare providers on that front as well, says David Cutler, a professor at Harvard University who studies healthcare spending. The increase in the uninsured population to 45 million has been given lip service by Bush, Cutler says. "Nobody thinks things (for the uninsured will) get better the next four years," Cutler said.
Bush has not ignored healthcare completely. Stated targets have included improving the investment technology infrastructure of healthcare, limiting tort awards, and, most importantly, expanding market-based solutions. The IT effort lacks funding to do very much and the tort caps aren't likely to garner the votes needed in Congress, economists say.
But the administration's effort to give consumers more choices and financial responsibility for healthcare is likely to make more headway. For example, the Medicare Modernization Act included a provision to increase payments to private Medicare HMOs, a move designed to get managed-care companies back into the program, says Jonathan Goldstein, managing director for TA Associates, a private investor in healthcare and other industries.
With a shift to private solutions under Bush will come a greater burden on healthcare consumers under the goal of making the industry more efficient. Consumers will have to make more decisions, pay more and perhaps demand greater value, says Glenn Melnick, a professor at the University of Southern California and a health economist at Rand Corp. "This could be revolutionary," he says.
A major problem with this move is that healthcare providers and the industry as a whole are not set up to offer consumers the choices they need to make decisions or even treat them in a consumer-driven fashion, he says. "Providers will have to begin to compete on the basis of value, which they haven't done so far," he says.
And if changes are pushed through too quickly, there could be a backlash, he adds.
Christopher Thornberg, senior economist with the UCLA Anderson Forecast, a research unit of University of California at Los Angeles, agrees that changing the consumer's role is important to fixing healthcare. The only problem is that neither Bush nor any other politician will have the ability to do what needs to be done: Tell consumers they are the problem with healthcare, he says.
Americans consume too much healthcare and don't want to pay for it, he says. "When you boil it down, it's our own fault. It's consumers who want something for nothing," he says.
-with Jeff Tieman