Medicare report shows Obamacare is bending the cost curve
The 2014 Medicare Trustees Report has just been released, and it shows that the program is on noticeably sounder financial footing than it was just a year ago. One of the biggest signs of this is that the projected depletion date of the Hospital Insurance (Part A) Trust Fund has been pushed back by four years just since last year’s report.
Indeed, Sarah Kliff points out that Part A actually spent $600 million less in 2013 than in 2012, even though it insured 1.6 million more people. As she emphasizes, the big news in this is that per capita Medicare Part A spending has been falling. This is a great sign that there is forward movement in controlling the actual cost of care.
Source: Vox.com, link above
This is a big deal because not only are Baby Boomers like myself inching towards Medicare eligibility in large numbers, but hospitals and other providers (unfortunately, these two groups are merged in OECD statistics) account for most of the excess of US health care spending compared to other industrialized nations. In fact, comparing the United States to Canada, specifically, I found that payments to providers made up 85% of the per capita cost difference between the two countries.
Moreover, as Kliff points out, even when you include Part B and Part D into the calculation, Medicare’s per capita cost showed no increase in 2013. Zero.
Indeed, if you want to see a very graphic demonstration in the change in the cost curve, Louise Sheiner and Brendan M. Mochouk of the Brookings Institute (h/t Matt Yglesias) have just what you’re looking for.
Source: Brookings Institute, link above
Yes, in just five years, the estimated federal health expenditure has dropped by more than 2 percentage points of GDP by 2035, what would be a difference of $320 billion per year today.
Of course, the Patient Protection and Affordable Care Act cannot take all the credit for this improvement. But, as the Washington Post reported, the law “is slowing payments to Medicare Advantage” and, as also mentioned here, the penalty for hospitals with high re-admission rates has produced a substantial fall in the 30-day re-admission rate, from about 19% in 2011 to less than 18% in 2013. With better care, fewer re-admissions means lower costs.
Thus, while no phenomenon this complex can have a single cause, it is clear that Obamacare is having an impact beyond insuring 10.3 million uninsured, working as designed to improve health outcomes and reduce costs.
Cross-posted from Middle Class Political Economist.
Can we talk about the Infinite Future for a second?
Per the 2014 Medicare Report and in a number buried in Appendix F we see that the 75 year actuarial gap for HI is set at $1.9 trillion dollars.
If we look at the equivalent number from the 2012 Report as breathlessly repeated in the MSM that number was $38.6 trillion.
Now back then the claim from most on the economic right was that the ‘true’ amound of Public Debt would include ‘unfunded liability’. Which would make the decline from $38.6 trillion to $1.9 trillion by far the greatest debt reduction in history. Indeed it would probably take the first five or six millennia of civilization to even have $36.7 trillion of GDP to say nothing of debt savings of that amount over a two year period. Christ we might as well call him St. Obama.
But here is the point. In the 2014 Social Security and Medicare Reports all the reporting on ‘Unfunded Liability’ over the ‘Infinite Future Horizon’ got buried in back Appendices. Whereas in 2012 and before those numbers were highlighted from and center in a way that allowed the Peterson CRFB/Concord/Generation Opportunity/Can Kicks Back Folk to lead the reporting with them. For example check out the link I just provided.
Now I have argued for years that Infinite Future reporting is rank bullshit and those numbers should never have been fronted at all. So it is oddly gratifying that the Trustees of Social Security and Medicare deep-sixed these numbers with no comment at all.
Back in 2009 I labelled this “Infinite Hooey” at both Angry Bear and my own blog the “BruceWeb”. And it still is.
A while back Yves did a blog about Elmendorf/CBO and the rising cost of healthcare. CBO projected unlimited growth of healthcare costs going into the future and as high as 19.1%. “the Congressional Budget Office’s most recent long run outlook shows spending on Medicare and Medicaid, the governments health programs for the old and poor, respectively, rising from 4.1 per cent of GDP in 2007 to 19.1 per cent of GDP in 2082.”
“CBO did not present similar calculations for health spending; instead, they projected health spending under three different assumptions about the rate of growth of age-adjusted health care spending in excess of per capita income. Their projections show health spending ranging from 7 to nearly 40 per cent of GDP by 2082.”
The Fed’s Glen Follette and Louise Sheiner did their own study of healthcare costs and basically said BS. http://www.bancaditalia.it/studiricerche/convegni/atti/fiscal_sustainability/session_3/Follette%20Sheiner.pdf AN EXAMINATION OF HEALTH-SPENDING GROWTH IN THE UNITED STATES:
PAST TRENDS AND FUTURE PROSPECTS Glenn Follette and Louise Sheiner* In a nutshell’ here is what they said after BS:
“Long-run projections that assume that age-adjusted health care spending rises more than 1 percentage more rapidly than per capita income are probably not balanced because faster rates of growth imply declining per capita consumption of non-health goods and services. If we assume 1 per cent excess growth, then past experience suggests that the resulting pattern of health spending across income groups will create pressures to increase government support of health care among lower income groups.”
Yves did her commentary here: http://www.nakedcapitalism.com/2012/11/fed-budgetary-experts-demolish-cbo-health-cost-model-the-lynchpin-of-budget-hysteria.html “Fed Budgetary Experts Demolish CBO Health Cost Model, the Lynchpin of Budget Hysteria”
“The argument made by the opponents of the plans to cut Social Security and Medicare generally take this form: concerns about Social Security are greatly exaggerated. They are based on long-term forecasts, which are notoriously inaccurate in outlying years. The most commonly cited, by the Trustees of the Social Security system, projects the exahustion of the famous trust fund in 2033. As several analysts have observed, if Social Security really has a problem, we’ll know it in plenty of time; there’s no need to do anything immediately.
By contrast, conventional wisdom is that Medicare does have a long term cost predicament, but the problem is not demographic, but that of the steep rise of health care costs in general.
The fundamental beef of Follette and Sheiner with the CBO model is that it naively assumes past growth in health care spending as the basis for its long-term projections. The result is that it shows that trees will grow to the sky. One of the things anyone who has built forecasting models will tell you is you come up with assumptions that look reasonable and then sanity check the output (for instance, does your model say in year 10 that your revenues will be 3x what you can produce given your forecast level in plant and investment? If so, you need to make some revisions). The Fed economists point out numerous ways that the model output flies in the face of what amounts to common sense in the world of long term budget forecasting. From the opening of the paper (emphasis ours):”
What Yves is saying is basically what Sheiner and Follete said; but, she says it a bunch more forcefully. Both are good reads. Basically what they are saying is the growth in healthcare cost will not be allowed to crowd out other needs as something will give. Healthcare costs at ~1% growth are sustainable. If you have some time, I thing you will enjoy them both and this may explain the turnaround of which you speak.