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Medicare’s Long-Term Fiscal Peril Deserves More Attention

Steve FindlayThis year’s release of the annual Medicare Trustee’s report on June 22—261 pages of mind-numbing healthcare and budget minutiae—coincided with the release of the House Republican’s long-awaited alternative to Obamacare.   

Coincided, but not coincidence.  Republicans’ sought to leverage the annual report’s hand-wringing about Medicare’s fiscal unsustainability—to draw attention to their proposals.     

Indeed, the GOP plan garnered the news spotlight.  But it’s the Trustee’s report that deserves closer attention and has more long-term import.   

Why?  For starters, the GOP health reform plan is going nowhere.  It’s nice that Republicans finally went beyond their “repeal Obamacare” rhetoric.  But, as most of us now realize, the chances that Obamacare will ever get fully repealed and replaced are rapidly declining—for technical and political reasons.  If Hillary becomes president, it certainly won’t happen over the next four years. 

Second, although the new GOP plan contains some ideas that may come into play as possible fixes to Obamacare and Medicare over the next 20 years, it is primarily a compilation of re-heated concepts and ideas that: (a) have failed for years—even decades—to garner broad support; (b) have inherent flaws in today’s healthcare marketplace; and (c) would take us backward in coverage expansion, productivity and quality enhancement, and cost constraint.   

In contrast, this year’s Medicare Trustee’s report comes at a crucial moment.  We are 5 years into Obamacare implementation and its strengths and flaws are becoming clearer.  Health costs are again on the upswing.  The economic recovery remains weak, with Brexit adding to instability on that front.  And the long-term fiscal and federal budget (think taxes) challenge posed by Medicare, Medicaid and Social Security remain largely unaddressed.   

At a joint Brookings/American Enterprise Institute briefing on the report on June 23, a group of healthcare experts (of all political stripes) strongly agreed that Congress has been “sleepwalking into a major entitlement crisis” for more than a decade.  Conservatives/Republicans grumble about this a lot more than liberals/Democrats, but the Dems, too, get that the problem is serious.

To wit:

76 million baby boomers began moving into Medicare in 2011 at the rate of 10,000 a day.  By 2029, they’ll all be in—with enrollment rising from 57 million today to 73 million in 2025 and 89 million in 2040. 

Medicare spending is projected to double over the next decade, from $683 billion in 2016 to $1.3 trillion in 2025.   

The average annual per beneficiary cost in the program is projected to rise from $12,925 in 2016 to $19,400 in 2025.   That reflects an average annual rate of increase over the next decade almost three times what it was in the years 2010 to 2015 (4.3% versus 1.5%).   (Importantly, overall per person per year health spending—for people of all ages—is forecast to grow at 4.9% over the next decade, about 1% faster than average GDP growth.) 

The Medicare hospital trust fund (Part A) will be insolvent by 2028, 2 years earlier than the Trustees projected last year.

Medicare spending will rise from 3.6% of GDP in 2016 to 5% in 2030 under current law.    (It was just over 2% of GDP in 2000.) (Health care spending overall is now 18% of GDP, and projected to rise to 20% by 2024.)   

On this last point, the Trustees assume in their projections that the cost constraints imposed on Medicare by the ACA and, more recently, MACRA (the law that replaced the SGR formula and creates an entirely new physician payment system which goes into effect in 2019) will be retained and not dramatically altered.  But, for illustrative purposes, the Trustees also calculated what would happen if, in their words, “adherence to the MACRA and ACA cost-reducing measures erodes” over the next decade and beyond.    

The results were dramatic:  Medicare spending alone could rise to 6.2% of GDP in 2040 and 9% in 2090.  Of course, such long-term projections—anything beyond 10 years—have a large margin of error, as the Trustees acknowledge.   

Indeed, their report notes:  “Scientific advances will make possible new interventions, procedures, and therapies. Some conditions that are untreatable today will be handled routinely in the future. Spurred by economic incentives, the institutions through which care is delivered will evolve, possibly becoming more efficient. While most health care technological advances to date have tended to increase expenditures, the health care landscape is shifting. No one knows whether future developments will, on balance, increase or decrease costs.”  (My emphasis in italics.) 

Even so, the overall point the Trustees make is profound: we not only have to stay the course on improving efficiency and productivity in health care while bringing the growth rate in costs down, we have to accelerate that effort.  And we can’t wait until 2025 or beyond to do it.  If we do wait, health care costs will come to dominate the federal budget (they are already 20% of it) and crowd out other, necessary spending, and force wrenching changes.   

Here’s are portions of the report that jumped out at me, edited for brevity and with my italics for emphasis:     

“The Board [of Trustees] assumes that the various cost-reduction measures [in the ACA and MACRA] will occur…. [and are] achievable if health care providers are able to realize productivity improvements at a faster rate than experienced historically. However, if the health sector cannot transition to more efficient models of care delivery and achieve productivity increases commensurate with economy-wide productivity, and if the provider reimbursement rates paid by commercial insurers continue to follow the same negotiated process used to date, then the availability and quality of health care received by Medicare beneficiaries would, under current law, fall over time compared to that received by those with private health insurance…. 

“The Trustees are hopeful that U.S. health care practices are in the process of becoming more efficient as providers anticipate more modest reimbursement growth rates, in both the public and private sectors, than experienced in recent decades. The methodology for projecting Medicare finances assumes a substantial long-term reduction in per capita health expenditure growth rates relative to historical experience, to which the cost-reduction provisions of the ACA and MACRA would add substantial further savings…..

“Notwithstanding recent favorable developments, current-law projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.”  

There’s more to this story.  A follow-up blog will discuss the House GOP health plan’s proposals on Medicare; the long-running debate over the role of Medicare Advantage; IPAB (the Independent Payment Advisory Board mandated in the ACA to control Medicare spending); and the politics of Medicare reform in the presidential campaign, triggered in part by a possible 20% or more increase in Part B premiums in 2017 for wealthier beneficiaries.      

 Steven Findlay is an independent journalist and editor who covers medicine and healthcare policy and technology.     

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