‘ObamaCare’ success story: ‘The Medicare Miracle’

Margot Sanger-Katz reports for The Upshot at the New York Times that the Affordable Care Act aka “ObamaCare” is bending the cost curve even more than projected, extending the life of the program. Per Capita Medicare Spending Is Actually Falling:

Medicare spending isn’t just lower than experts predicted a few years ago. On a per-person basis, Medicare spending is actually falling.

If the pattern continues, as the Congressional Budget Office forecasts, it will be a rarity in the Medicare program’s history. Spending per Medicare patient has almost always grown more rapidly than the economy as a whole, often by a wide margin.

Health economists call that difference “excess cost growth.”

Lately, though, some have taken to using the unwieldy phrase “negative excess cost growth.”

This year, Medicare, which covers those 65 and older and people with disabilities, will spend about $ 11,200 on average for every person enrolled in the program. By comparison, it spent $12,000 three years ago, in inflation-adjusted dollars. The Congressional Budget Office forecasts that the number will fall below $11,000 by 2017 and stay below this year’s number until 2020.

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The only other time cost growth has ever stayed below zero was in the late 1990s, when Congress made substantial cuts to Medicare spending. Then, the trend lasted for three years. This time, the budget office expects it to be more enduring.

The recent pattern reflects two main factors. One is that the baby boom generation is entering the program. In the long term, that’s a problem for Medicare’s finances because the number of people it must care for is going to surge. But in the short term, it skews the group enrolled in Medicare toward a younger, healthier population.

The second factor is more surprising and consequential. Over the last few years, Medicare patients have been using fewer expensive medical services, particularly hospital care and prescription drugs. The budget office is increasingly persuaded that such a pattern is going to last for a while.

The reduction in the usual growth in health care spending means spending for the entire Medicare program is on track to grow more slowly over the next decade, even as more baby boomers reach retirement age and the number of people entering the program grows.

An inflation-adjusted picture of Medicare’s overall spending trajectory, according to the C.B.O., shows modest growth for the program, especially compared with its estimates from just a few years ago. Reductions made in the last four years alone are responsible for 10-year savings of more than $715 billion, which dwarfs nearly every deficit-reduction measure currently under discussion.

(The budget office’s projections here assume that Congress will not raise doctors’ pay through its usual custom of temporary “doc fix” bills, but the trend will look almost identical even if Congress does pass such bills.)

New York Times columnist Paul Krugman calls it The Medicare Miracle:

[S]omething remarkable has been happening on the health-spending front, and it should (but probably won’t) transform a lot of our political debate.

The story so far: We’ve all seen projections of giant federal deficits over the next few decades, and there’s a whole industry devoted to issuing dire warnings about the budget and demanding cuts in Socialsecuritymedicareandmedicaid. Policy wonks have long known, however, that there’s no such program, and that health care, rather than retirement, was driving those scary projections. Why? Because, historically, health spending has grown much faster than G.D.P., and it was assumed that this trend would continue.

But a funny thing has happened: Health spending has slowed sharply, and it’s already well below projections made just a few years ago. The falloff has been especially pronounced in Medicare, which is spending $1,000 less per beneficiary than the Congressional Budget Office projected just four years ago.

This is a really big deal, in at least three ways.

First, our supposed fiscal crisis has been postponed, perhaps indefinitely. The federal government is still running deficits, but they’re way down. True, the red ink is still likely to swell again in a few years, if only because more baby boomers will retire and start collecting benefits; but, these days, projections of federal debt as a percentage of G.D.P. show it creeping up rather than soaring. We’ll probably have to raise more revenue eventually, but the long-term fiscal gap now looks much more manageable than the deficit scolds would have you believe.

Second, the slowdown in Medicare helps refute one common explanation of the health-cost slowdown: that it’s mainly the product of a depressed economy, and that spending will surge again once the economy recovers. That could explain low private spending, but Medicare is a government program, and shouldn’t be affected by the recession. In other words, the good news on health costs is for real.

But what accounts for this good news? The third big implication of the Medicare cost miracle is that everything the usual suspects have been saying about fiscal responsibility is wrong.

For years, pundits have accused President Obama of failing to take on entitlement spending. These accusations always involved magical thinking on the politics, assuming that Mr. Obama could somehow get Republicans to negotiate in good faith if only he really wanted to. But they also implicitly dismissed as worthless all the cost-control measures included in the Affordable Care Act. Inside the Beltway, cost control apparently isn’t considered real unless it involves slashing benefits. One pundit went so far as to say, after the Obama administration rejected proposals to raise the eligibility age for Medicare, “America gets the shaft.”

It turns out, however, that raising the Medicare age would hardly save any money. Meanwhile, Medicare is spending much less than expected, and those Obamacare cost-saving measures are at least part of the story. The conventional wisdom on what is and isn’t serious is completely wrong.

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The other [story] involves the “sticker shock” that opponents of health reform have been predicting for years. Bulletin: It’s still not happening. Over all, health insurance premiums seem likely to rise only modestly next year, and they are on track to be flat or even falling in several states, including Connecticut and Arkansas.

What’s the moral here? For years, pundits and politicians have insisted that guaranteed health care is an impossible dream, even though every other advanced country has it. Covering the uninsured was supposed to be unaffordable; Medicare as we know it was supposed to be unsustainable. But it turns out that incremental steps to improve incentives and reduce costs can achieve a lot, and covering the uninsured isn’t hard at all.

When it comes to ensuring that Americans have access to health care, the message of the data is simple: Yes, we can.