First Robin of Spring?

Suddenly, Medicare is growing much more slowly than expected, and nobody knows why. Still, no one’s complaining.

Morton Genser poses with his prescription drugs Thursday, Dec. 3, 2009 at his home in Tamarac, Fla. Lawmakers trying to woo seniors skeptical of their health care overhaul have been emphasizing their plan to close the "doughnut hole," a gap in Medicare drug coverage that can cost a person thousands of dollars a year. For some, trying to avoid the doughnut hole has become a science. Genser's wife Maida meticulously keeps track of her 72-year-old husband's drug costs, tallying statements as they arrive in and trying to determine when he'll hit the threshold. Genser takes numerous pills every day to control diabetes, blood pressure and other problems. (AP Photo/Wilfredo Lee)
National Journal
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Margot Sanger Katz
April 26, 2012, noon

The re­lease of the Medi­care trust­ees’ re­port, an an­nu­al rite that took place again this week, gen­er­ally boils down to the same story: The pro­gram to in­sure seni­ors is grow­ing much faster than its rev­en­ues, and soon Con­gress will need to choose wheth­er to cut it or raise money to pay for it. Those fa­mil­i­ar pro­jec­tions as­sume that, in the short term, Medi­care’s growth will mir­ror his­tor­ic trends and lim­its im­posed un­der cur­rent law; in the long term, growth will some­how slow down, be­cause something’s got to give. The Medi­care trust fund that pays for hos­pit­al care will no longer be able to fully pay its bills in 2024, ac­cord­ing to this year’s re­port.

But what if Medi­care doesn’t fol­low this script? Dur­ing the past two years, something weird has happened to Medi­care spend­ing: It has grown much more slowly than any­one ex­pec­ted. In­stead of the pro­gram’s av­er­age 6 per­cent in­crease per be­ne­fi­ciary in re­cent years, 2010’s rate was 0.2 per­cent. In 2011, it was 2.8 per­cent. This dra­mat­ic change was sharp­er than the slow­down in the private health care mar­ket. It came the year after the re­ces­sion tech­nic­ally ended but be­fore the Af­ford­able Care Act’s at­tempts to bend the cost curve took ef­fect. Even if we don’t un­der­stand what caused the dip, though, its ef­fects are easy to grasp: If it sticks, it will mean good news for Medi­care and for the politi­cians who will have to fix it.

For now, there are still more ques­tions than an­swers, and it will take time for ana­lysts to drill in­to the data in search of an ex­plan­a­tion. Take one find­ing from 2011: Hos­pit­al ad­mis­sions de­clined by 2 per­cent among Medi­care be­ne­fi­ciar­ies. That may have been a fluke (per­haps a mild flu sea­son). It may have been an af­ter­shock of the re­ces­sion (seni­ors, wor­ried about their fin­ances, put off their knee re­place­ments). Or it may have been an in­flux of young­er seni­ors in­to the pro­gram (mak­ing the mix of pa­tients health­i­er than in past years).

Health eco­nom­ists are de­bat­ing even these pos­sible an­swers, be­cause none ne­ces­sar­ily ac­counts for the low num­bers. “If we use the nor­mal mod­els, then the de­cline in spend­ing has been great­er than what we would ex­pect just from a re­ces­sion alone,” says Gail Wi­lensky, a seni­or fel­low at Pro­ject Hope and a former Medi­care dir­ect­or. But she still thinks that the pro­gram’s growth will re­bound when the eco­nomy im­proves. Paul Gins­burg, the pres­id­ent of the Cen­ter for Study­ing Health Sys­tem Change, sur­veys pro­viders around the coun­try; he re­cently wrote an es­say for The New Eng­land Journ­al of Medi­cine ar­guing that Medi­care may be on the edge of a long peri­od of slower spend­ing growth. But even he calls the re­cent data “baff­ling.” He ad­ded, “It’s been a nice sur­prise.”

It’s also pos­sible that something struc­tur­al and per­man­ent has happened that will out­live the down­turn. Medi­care’s growth slowed more dra­mat­ic­ally than growth in the health care sys­tem over­all, adding to the puzzle for eco­nom­ists. Medi­care re­cip­i­ents are older and sick­er than the rest of the pop­u­la­tion, their in­sur­ance cov­er­age is guar­an­teed, and their in­comes are less likely to fluc­tu­ate with the mar­ket. So their be­ha­vi­or is typ­ic­ally less in­flu­enced by eco­nom­ic factors.

Peter Or­sz­ag, a former dir­ect­or of the Of­fice of Man­age­ment and Budget and now a vice chair­man at Cit­ig­roup, says he is in­creas­ingly con­vinced that the re­ces­sion alone can’t ex­plain the slow­down. He thinks that the health care sys­tem is chan­ging and that we’re see­ing the res­ults first in the older, sick­er pop­u­la­tion that uses it more. Or­sz­ag points to de­vel­op­ments such as the em­brace of elec­tron­ic med­ic­al re­cords and bench­mark­ing data (which urge doc­tors to avoid waste­ful care) and to new fin­an­cial in­cent­ives from private in­surers to re­duce un­ne­ces­sary hos­pit­al­iz­a­tions. “The re­ces­sion clearly has some im­pact, but I think that there’s at least some com­pon­ent of this de­cel­er­a­tion that is struc­tur­al,” he says. Kar­en Dav­is, pres­id­ent of the Com­mon­wealth Fund, a health care think tank, made sim­il­ar ar­gu­ments in her blog re­cently.

Medi­care’s chief ac­tu­ary, Richard Foster, says he will ana­lyze the num­bers to fig­ure out wheth­er seni­ors were cut­ting back on cer­tain ser­vices or just us­ing the health care sys­tem less over­all. But he res­ists de­scrib­ing a last­ing trend un­til the data bear it out. Even as he plans to dig deep­er, his guess is that 2010 did not ush­er in a new peri­od of slow growth for the en­ti­tle­ment pro­gram. “We’d like to see the start of a new trend now,” Foster says, “but it’s not something I’d like to bet the farm on.”

That’s a very wise strategy, be­cause even su­per-slow growth can’t fix Medi­care en­tirely. The pro­gram will still ex­pand in the com­ing years and dec­ades, even if per-be­ne­fi­ciary spend­ing de­clines. Con­gress may find that fix­ing Medi­care just got a little easi­er, but it will still have a job to do. 


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