Over the past two years, conventional wisdom presumed without offering much in the way of evidence that the lingering recession and the rise of high-deductible and narrow network plans explained the slowdown in healthcare spending, now in its fifth year.
Indeed, most economists and the media echo chamber repeatedly said rapid spending growth would resume once the economy picked up steam, which it has. But healthcare spending growth has not.
The argument that the slowdown was transitory had a shred of plausibility in the privately insured market, where reporting is much less transparent and the impact of higher costs on households—a very real phenomenon—takes time to unfold.
But now, finally, the Mr. Joneses at the Congressional Budget Office have come around to admitting that something is happening here, even if they don't know what it is.
“Although it is unclear how much of that slowdown is attributable to the recession and its aftermath and how much to other factors, the slower growth has been sufficiently broad and persistent to persuade CBO and the Joint Committee on Taxation to dramatically lower their projections of federal costs for healthcare,” according to the latest budget outlook report.
Most media accounts last week focused attention on the CBO's significantly lower projections for spending on premium subsidies available under the Affordable Care Act. As recently as January, the government projected over $1 trillion would flow to low- and moderate-income households buying health plans on the exchanges over the next decade.
Now, the CBO projects it will be $209 billion less because of lower overall premiums and—surprise, surprise—a reduction in the number of people who will need coverage. Fewer small and medium-sized businesses are expected to drop coverage because, lo and behold, insurance has become more affordable for employers because of the slowdown.
Indeed, the slower growth in employer insurance premiums will cost the government $62 billion under the new projections because far fewer companies and union-run plans that offer generous benefits will get caught up in the onerous “Cadillac plan” tax.
Suggesting the slowdown was transitory never made sense when it came to Medicare. Most seniors are insulated from the vicissitudes of the business cycle. And the last thing anyone would call Medicare is a high-deductible plan with a narrow network. Yet the slowdown has been just as dramatic there as it has been in the private insurance market.
Even the CBO now admits that the healthcare system has begun delivering lower-cost care to seniors. A year before the ACA passed, the CBO expected the CMS to spend $725 billion in 2015. Last week, it projected this year's spending would be just $632 billion, or $11,429 for each of the program's 55.3 million beneficiaries.
The lowered spending outlook extends over the next 10 years. Indeed, if you divide what the CBO now projects Medicare to spend each year by the number of expected beneficiaries (which accounts for the onslaught of baby boomers into the program), the spending increase averages about 3% a year in unadjusted dollars. That's just 1% above inflation and significantly below the usual economic growth.
Of course, the CBO bases its projections on current law. Congress and the White House have imposed across-the-board cuts in Medicare as their primary target for deficit reduction.
So far, the system has adjusted without causing an outcry from seniors or cost-shifting to the privately insured. Can that continue over the next decade? It will take a lot more work by providers to wring costs out of the system if they're going to be able to turn those projections into reality.