Explaining Medicare’s Slowing Spending Rate
The slowing rate of growth of Medicare spending per beneficiary is the root cause of the rose-colored glasses through which the Administration views the latest Medicare Trustees’ report, which predicts insolvency four years later than the previous report did. So, what explains this slowing rate of growth?
Analysts at the U.S. Department of Health & Human Services have just released an analysis explaining what has happened. Figure 1 shows that national health expenditures have been growing at 3 percent per capita from 2009 through 2013. Medicare spending per beneficiary has grown slower than this since 2009, effectively flattening in 2013.
Much of the things that the analysts identify as having contributed to the reduced rate of growth would have had the same effect in the private market: Increased use of generic drugs, reduced spending on imaging, and reduced inpatient hospitalization. Indeed, the reduction in hospital admissions explains fully one quarter of the slowing spending rate, and this contribution comes from reduced utilization, not lower charges.
This conclusion also speaks well of Medicare Part D, the prescription-drug benefit. Because of increased generic use, Part D costs less than originally anticipated. However, because prescription-drug use reduces other health costs, especially hospitalization (see here and here), it deserves a lot of credit for the improving bigger picture.
The major difference that I can see between what happened in the private market and what happened in Medicare is that the baby boomers started aging into Medicare three years ago. This lowered the age (and improved the health status) of the average Medicare beneficiary. This effect will continue for a few more years. However, let’s not forget that the reason they are called baby boomers is that there are a lot of them, so total Medicare spending is still growing apace.
I think it’s also important to note that the standard Part B premium did not increase since 2012 and could well remain flat again in 2015. Since Part B premiums, since 1996, are set to cover 25% of Part B costs, it implies that per capita spending on that part of Medicare has not increased since 2012 and remains steady.
Second, while I don’t have any data, it’s conceivable that people turning 65 today are healthier on average than those who turned 65 10 or 20 years ago. If that’s the case, it’s additional good news for per capita Medicare spending.
Third, hospitals are working harder at reducing hospital acquired infections. They are also doing a better job of discharge planning which should help to reduce 30 day readmission rates.
Finally, my understanding is that the use of hospice care is growing. With doctors also slowly becoming more cost conscious and, hopefully, more people executing living wills or advanced medical directives or signing POLST documents, we could see a secular decline in futile or marginally useful spending at the end of life.
Overall, I’m more optimistic than many about the prospects for slowing the medical cost growth curve over time.
Very interesting. it’s good to see ACA got something right…more than $9.9 billion saved in drug costs!
Yeah they got one out of _____ right. They don’t get a pat on the back quite yet.
That’s not he ACA! That’s the Medicare Modernization Act of 2003 – a decade before the ACA.
Frank, wasn’t the Medicaid Part D prescription drug benefit President Bush’s reform early in his first term?
“This conclusion also speaks well of Medicare Part D, the prescription-drug benefit. Because of increased generic use, Part D costs less than originally anticipated. However, because prescription-drug use reduces other health costs, especially hospitalization (see here and here), it deserves a lot of credit for the improving bigger picture.”
I think anything that encourages patients to shop around for generics and other low-cost alternatives is a good thing, as evidenced here. And this is what we should be doing more of – encouraging competition. It’s true even when the government does it.
Medicare part D is really the only public health program that the government does right.
“This lowered the age (and improved the health status) of the average Medicare beneficiary. This effect will continue for a few more years.”
I think this has a big effect on the flat cost changes. However, costs are still increasing at 3 percent per year – it would be nice if that were lower. Perhaps we ought to try more HSAs. We know those actually REDUCE costs.
I don’t think we are out of the woods yet on this issue. The boomers are just starting to be of age for Medicare. They have made the average age younger because there are so many of them, but it is just about to start.