When the ACA passed in 2010, the law mandated lower hospital expenditures, which extended the exhaustion date for the HI trust fund to 2024. Last week, the actuaries at Medicare, after looking at the sharp slowdown in healthcare spending the past three years, extended the trust fund's projected life to 2030.
Medicare isn't the only program with lower projected growth. The CBO, which serves as Congress' independent voice for making long-term budget projections, confirmed that the slowdown extends to Medicaid. The CBO shaved $395 billion, or 10%, off the federal government's share of caring for the poor compared with its 2010 (pre-ACA) forecast for the next decade. States, which pay for about half the program, would presumably save a similar amount.
The federal Medicaid share reduction comes on top of the 12%, or $715 billion, that the CBO sliced off its 10-year Medicare projections, which is about the same as what the Medicare actuaries predicted (and, it should be noted, includes the assumption that Congress will continue to “fix” physician pay so the cuts in the law aren't imposed; that makes the reduction even more impressive). The two programs' combined savings will leave the government paying well under 6% of gross domestic product for healthcare programs in 2020.
How big a reduction is that? A comparison is in order. When the National Commission on Fiscal Responsibility and Reform (better known as the Simpson-Bowles Commission) issued its famous deficit-reduction proposal in 2010, its draconian cuts would have limited healthcare spending to 6.3% of GDP in 2021, down from the then projected 6.6%.
For healthcare providers, 6.3% compared to the latest projections from the CMS and CBO would be a hefty pay hike.
Yet to listen to most economists who follow the sector closely, and most analysts inside the Beltway, there's not much to cheer about in these latest projections. Their arguments continue to shift.
At first, analysts claimed the slowdown was due to the recession. That was never a very plausible explanation for slower government spending on healthcare since seniors are less affected by economic downturns and healthcare expenditures on the poor, if anything, should rise when the economy sours.
Likewise, most other explanations for slower growth in health spending in the private sector—the rise of high-deductible plans; greater cost consciousness among consumers because of the reform debate; the weather—don't really apply to government programs, either, although a case could be made for last winter's cold weather. That stops everyone from going to the doctor, and perhaps seniors most of all.
None of that begins to explain the ongoing deceleration in government spending. Medicare spending on a per beneficiary basis averaged a 0.2% increase each year in 2012-13, compared with a 1.9% average increase in 2010-11.
That doesn't mean the system is out of the woods. As Robert Reischauer, a former head of the CBO and now a Medicare trustee, noted after last week's report, the 77 million baby boomers are just beginning their transition from private insurance to public programs. “Some might be tempted to conclude that Medicare is healing its maladies on its own,” he said, but that's “not (a) prudent conclusion.”
Agreed. But that's a financing problem, not a spending problem.
It's time for government policymakers to take a closer look at the delivery-system reforms being implemented across the country. Something out there is clearly working. Payment policy needs to be redesigned to reward those efforts.
Follow Merrill Goozner on Twitter: @MHgoozner