The solution isn’t obvious, especially because our piecemeal system of medical care relies on a mix of private and public insurers. Typically, when the government cuts payments for public programs such as Medicare—which could happen as part of a budget deal next year—hospitals and other providers raise premiums in the private market to recoup those costs. Policymakers don’t exert much control over private-market spending.
Some evidence shows, however, that the health care system is, in fact, becoming more efficient. Cost growth has slowed during the past few years, and optimists say that doctors and hospitals have begun changing the way they practice medicine to reduce waste and unnecessary care. Maybe. It’s clear that private insurers and Medicare are experimenting with new payment incentives to encourage this type of reorganization. It may take years before we know whether they are working.
Employers have reacted to rising costs by adopting insurance plans that shift more of the financial burden onto workers. Some 72 percent of American employees who get insurance at work now have plans that include a deductible, up from 52 percent in 2006, according to a survey from the human-resources firm Mercer. (The average deductible exceeds $1,000.) Many large employers have also launched wellness programs, hoping to keep their workers healthier and out of hospitals.
These efforts may be starting to succeed: The rise in medical costs has decelerated. After double-digit growth in the 1990s, annual premium increases dropped to 4 percent in 2012—albeit, still growing faster than the overall economy—and averaged about 6 percent over the past few years. There’s some evidence that high-deductible plans, by shifting costs to individuals, reduce their health care spending. Research also shows, however, that making people shoulder more of the costs tempts them to skip necessary as well as unnecessary care.
Some employers have found an even blunter way to curb their costs: simply eliminate health insurance coverage. The penalties they’ll face in 2014 if they don’t change their minds will be cheaper than the cost of premiums. Paul Keckley, executive director at the Deloitte Center for Health Solutions, said that employers facing a financial squeeze are “looking to the statehouses and Washington and saying, ‘Fix this.’ ” But whether government will, or anyone else can, still looks questionable at best.
The author is the health care correspondent at National Journal.
By Jim Tankersley
This country’s social safety net was designed to cushion its citizens against extreme poverty, particularly when they are most vulnerable, and to lift them toward the middle class. That was the goal when Congress created Social Security in the 1930s and Medicare in the ’60s. For decades, the system has worked pretty well.
Maybe not for much longer. Concern is growing among economists—on the right and on the center-left—that surging federal spending on entitlement programs threatens to displace an array of public- and private-sector investments that broaden middle-class prosperity.
As baby boomers begin to retire, medical costs are rising much faster than inflation. As a result, spending on health care programs such as Medicare and Medicaid and on Social Security will more than double, from 7.3 percent of gross domestic product—their average over the past 30 years—to about 16 percent in 2037, the Congressional Budget Office predicts. Either the federal deficit will soar or taxes will rise as a share of GDP, and non-entitlement federal spending will fall, CBO estimates, from its 30-year average of 11 percent of GDP to as little as 7 percent in 2037.
Unless lawmakers bend that curve, the centrist Democratic think tank Third Way warned in a paper this year, “entitlements will encroach upon an even greater portion of the federal dollars once reserved for building roads, educating kids, and paving the way for technological breakthroughs”—all pillars of middle-class prosperity that government has historically funded. The free-market Heritage Foundation cautions that these entitlement programs are crowding out spending on defense, which supports plenty of well paying high-tech manufacturing jobs. Other conservative economists warn that raising taxes to fund safety-net programs on their current trajectory would impinge on private investment and job creation.
There’s still time to avoid the worst of these ill effects. Doing so needn’t require a politically explosive overhaul of the safety-net programs along the lines that House Republicans have proposed. A series of smart tweaks could slow the growth in costs considerably.
Social Security is the easier fix. Lawmakers could prolong its solvency simply by adopting a long-discussed change in how to calculate future benefit growth, switching from a wage-based measure of inflation to one based on consumer prices, which rise more slowly. Or, eliminating the cap on income that’s subject to payroll taxes would close nearly all of the projected gap, according to the nonpartisan National Academy of Social Insurance. Medicare and Medicaid are bigger challenges, because their growth is linked so closely to the economy-wide surge in health care costs. But while policymakers search for ways to tackle that larger problem, they could try some program-specific efforts to reduce the growth of federal health spending.