A recent diary suggests that provisions of the Affordable Care Act are decreasing the rate of increase in Medicare costs despite most provisions not taking effect until 2 or 3 years from now. The analysis reported in that diary is faulty. In this diary, I examine the rate of increase in Medicare spending for calendar years 2006 through 2010 and show where the outlier statistics are and how they affect any conclusion one can draw from the data.
Just below the jump is a table showing Medicare spending during the 5 year period from 2006 through 2010 and the rate of increase from the previous year. The baseline year is 2006. Why is this important? The prescription drug benefit, Part D, did not take full effect until 2006. Comparing 2005 and earlier total payouts against 2006 and later payouts is disingenuous, as Part D added $50-$60 billion to annual Medicare spending.
Here is a brief explanation of Medicare terminology. Part A is the hospitalization benefit. Part B covers doctor's office visits and Part D covers prescription drugs.
Annual Medicare Spending (in $Billions)
|Year||Part A||% Inc||Part B||% Inc||Part D||% Inc||Total||% Inc|
Points of Interest
2008 Part A Increase - Part A spending increased by 16% in calendar year 2008. This increase was larger than usual due to an upsurge in inpatient hospital admissions, together with a significant increase in the average complexity of cases as coded under the new MS-DRG system for classifying discharges by cost category.
2009 Part B Increase - Part B spending increased by 12.2% in 2009. This spending growth reflects increases both in the number of beneficiaries and in the price, volume, and intensity of services.
2009 Part D Increase - Part D spending increased by 23.3% in 2009. The trustee's report provides no explanation for this increase.
Overall U.S. health care spending growth decelerated in 2009, increasing 4.0 percent compared to 4.7 percent in 2008. Total health expenditures reached $2.5 trillion. Despite the decrease in total national health care spending, Medicare spending jumped by 8.7% in 2009.
Using CBO monthly budget results leads to faulty conclusions. Medicare outlays in the CBO report are net of proprietary receipts. In other words, this is not actual spending, it is spending minus Medicare payroll taxes and beneficiary premiums. Payroll taxes in particular vary with economic factors. The year 2006 was very different from the year 2010.
In addition, comparing average annual increases from 2000 through 2009 against increases from 2010 through first-half 2011 is fallacious if not downright fraudulent. Yet this is what the blog post cited by the diarist did. Why is that a problem? Consider the effect of outlier years like 2008 and 2009 on the data. Those 2 years of higher than normal increases pull the average higher for the entire 10 year period.
Points to Ponder
What accounts for the slower rate of increase in 2010 and (possibly) 2011? We are coming off a record-setting 2 year period of increases. Also, we are in the 2nd worst economic period of the last 100 years. Anecdotal evidence suggests that seniors, especially those with first- or second-hand memories of the Great Depression, have cut their use of health care services.
It is wise to remember that Medicare does not cover 100% of medical costs. Even those fortunate enough to have supplemental insurance, so-called "Medigap" policies, are cutting back to save on co-pays and other out of pocket expenses. Furthermore, some retirees or surviving spouses who had similar policies through benefit plans no longer do. For example, General Motors dropped their coverage in 2009.
Finally, the unemployment rate for adults age 65 and older reached 6.8 percent in February 2009, the highest levels recorded since the federal government began computing reliable unemployment rates in 1948. Senior unemployment rates were particularly high among African Americans, Hispanics and those who did not complete high school. In other words, those who most needed extra money to purchase Medigap insurance and co-payments.
While the Affordable Care Act may bend the cost curve on Medicare someday, there is no reliable evidence that it has had any effect to date. In fact, CBO estimates place the rate of growth for 2011 Medicare spending at 3.5%, which is higher than 2010's rate of 2.7%. Health care costs continue as an American problem because, unfortunately, President Obama did NOT save Medicare. At least, not yet.
Medicare Trustee's Report 2006 - 2010
Kaiser Family Foundation
The Urban Institute