Given the above stance, it seems appropriate to report occasionally on recent developments in medical costs and in cost projections. Let us begin with recent projection by the Congressional Budget Office (CBO) as reported in the New York Times.
For the third straight year the CBO has had to lower its Medicare cost projection below that of the previous year.
Two factors are at work in determining this decrease in costs: the financial crisis and its associated impact on consumer spending, and longer-term changes in the manner of healthcare delivery. Most who report on this issue believe that a significant fraction of the diminished rate of growth in costs is due to the latter factor. It seems the events surrounding the passage of the Affordable Care Act (Obamacare) and the terms of the new law have convinced the healthcare industry that it must change its ways of doing business. This article in Health Affairs provides a summary consistent with that point of view.
The Medicare Trustees issued their annual report recently. The New York Times provided analysis of the findings. The trustees are appropriately conservative and have previously included little if any savings from fundamental reform of healthcare delivery in their projections. While they project slightly lower programmatic spending in the near future, they attribute this to specific actions already taken by the administration.
"The administration said the outlook for the Medicare trust fund was brighter because of the 2010 health care law. The law squeezed nearly $500 billion out of Medicare over 10 years, in part by trimming payments to many health care providers, including nursing homes and private health plans."
The changes observed and accounted for in the current projection provide an additional two years to get our house in order.
A revealing graphic presentation of healthcare cost history is provided by the S&P Healthcare Economic Indices. From the latest report:
This chart is provided:
Note the general decrease in growth of expenditures after the financial crisis occurred. This was followed by an uneven but uniform decrease in the rate of growth. Note also that Medicare expenditures were relatively unaffected by the financial turmoil and have followed a simpler path of lowering growth rates, with most recent numbers hovering at the 1% level.
The fact that Medicare expenditures are growing more slowly than the economy is a rather dramatic accomplishment. One could claim that the program had become sustainable except for the fact that these are per capita expenditures and the number of people covered under Medicare is expected to grow by about 40% between now and 2025. There is a long way yet to go.
One of the fears expressed about Medicare is that the cost savings measures and the administrative requirements might drive doctors out of the program and leave patients in a worse position. An editorial in the New York Times addresses this issue.
"The analysts looked at seven years of federal survey data and found that doctors are not fleeing Medicare in droves; in fact, the percentage of doctors accepting new Medicare patients actually rose to 90.7 percent in 2012 from 87.9 percent in 2005. They are not shunning Medicare patients for better-paying private patients, either; the percentage of doctors accepting new Medicare patients in recent years was slightly higher than the percentage accepting new privately insured patients."
The number of doctors exiting the Medicare program is small, but it does have a large effect on their patients.
"The number of doctors opting out is tiny compared with the number of doctors, 735,000, who remain in Medicare. In addition, they are augmented by hundreds of thousands of nurse practitioners and other non-doctor providers."
Significant evolution is underway in our healthcare delivery systems. Until the outcome of these changes is clear, there can be no reliable projections of medical expenditures and budget deficits. While it is likely that some increase in charges or taxes will be required to maintain current benefit levels, it is too early to be able to respond intelligently to the problem.
We still have time to sit back and observe. Why not relax and do that, and enjoy whatever good news can be found.