The law reduced payments to providers and Medicare Advantage insurers and encouraged them to deliver more cost-effective care. Some experts say the sluggish economy and continued high unemployment also dampened healthcare spending, but the economy doesn't affect Medicare beneficiaries as much as other consumers in their use of healthcare services.
The more optimistic projections come with a slight change in constructing the models, the trustees said.
Previous reports have assumed that physician pay cuts from the sustainable growth-rate formula would occur. But this year's report has a baseline projection that assumes Congress will replace the cuts with 0.6% annual raises, starting in 2015. That puts the new projections on a more solid foundation, given the previous unrealistic assumption of a big pay cut.
Trustee Robert Reischauer, a former CBO director, said during the report's presentation that Medicare is still “fiscally unsustainable over the long run.” He rejected as imprudent the view that “Medicare is healing its maladies on its own.” Under the trustees' projections, spending still will grow faster than workers' earnings and the gross domestic product. Medicare spending is scheduled to rise from 3.5% of GDP to 5.5% by 2040. A huge part of that increase will come from the baby boomer generation's entry into Medicare.
Outside experts largely agreed with Reischauer, but disagree over what to do. Cori Uccello, the senior health fellow for the American Academy of Actuaries, said the report's message is that the program “shows serious long-term sustainability and solvency challenges.”
But Paul Van de Water, a senior fellow at the liberal Center on Budget and Policy Priorities, took a more positive tone. “Even though Medicare faces long-term challenges, there's every sign that these cost savings can be achieved without fundamentally transforming Medicare through measures like premium support,” he said. Possible solutions could include lowering payments to drug companies; targeting fraud, waste and abuse; changing cost-sharing policies; and increasing premiums for more affluent beneficiaries, Van de Water said.
President Barack Obama has proposed increasing Part B premiums for higher-income seniors, but that has gone nowhere in Congress.
Charles Blahous, the only Republican-appointed Medicare trustee, said at least some of the Medicare spending slowdown can be attributed to the healthcare reform law. But the trustees' report said it's unclear how much. The report shows that the ACA is expected to be a major part of cost containment in the future. It includes an “illustrative alternative” scenario in which Congress overrides the cost-saving actions in the law's Independent Payment Advisory Board. In that scenario, Medicare costs would rise to 6% of GDP in 2040, and 8.4% in 2088, compared with 5.6% and 6.9%, respectively, in their projected baseline.
Reischauer said the report projects slow Medicare spending growth for the next couple of years. “That's probably a safe assumption with respect to the private sector as well,” he added. He attributed the private spending slowdown to the growth of high-deductible health plans and plans with narrow provider networks.
Follow Darius Tahir on Twitter: @dariustahir
