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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
2006 191.9     169.0     47.3     408.2  
2007 203.1 5.8%   178.9 5.9%   49.5 4.7%   431.5 5.7%
2008 235.6 16.0%   183.3 2.5%   49.3 -0.4%   468.2 8.5%
2009 242.5 2.9%   205.7 12.2%   60.8 23.3%   509.0 8.7%
2010 247.9 2.2%   212.9 3.5%   62.0 2.0%   522.8 2.7%

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.

Misusing Statistics

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

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Comment Preferences

  •  Tip Jar (14+ / 0-)

    How quickly the Pacifist becomes the Warrior when it's "our side" doing the killing.

    by edg on Mon Aug 15, 2011 at 06:48:09 PM PDT

  •  Thanks very much for this. (2+ / 0-)
    Recommended by:
    Pluto, neroden

    Always good to see a more complete data set.

    I expressed skepticism in the earlier diary.  The cited blog blew off economic factors (i.e., recession) because Medicare premiums are small and co-pay small or zero.  It seems to me that many on Medicare have part-time jobs they may have lost or have to take in adult children and their families suffering from job and home loss.  These sort of factors might lead them to cut expenses such as premiums for supplemental care.

    The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt. Bertrand Russell

    by accumbens on Mon Aug 15, 2011 at 07:03:22 PM PDT

  •  well done (2+ / 0-)
    Recommended by:
    Pluto, neroden

    very informative diary.

    Thank you.

  •  Canada Health Care Costs (4+ / 0-)

    Just a little reminder of how bamboozled and screwed we are here.  I'm in Bellingham, WA 20 minutes from the border.  Across the line, prescription drugs cost 1/3 to 1/4 of Stateside prices.  Below are health care costs:

    My friend in British Columbia, CANADA!, pays 60/month.
    If you make nothing, you file a form and based on your pay, you get the help you need.
    “Effective January 1, 2011, monthly rates are $60.50 for one person, $109.00 for a family of two and $121.00 for a family of three or more.”
    1st Line = Adjusted Net Income
    2nd Line = Subsidy Level
    3rd Line = One Person
    4th Line = Family of Two
    5th Line = Family of Three or More

    $0 – $22,000
    100% premium assistance

    $22,001 – $24,000
    80% premium assistance

    $24,001 – $26,000
    60% premium assistance

    $26001 – $28,000
    40% premium assistance

    $28,001 – $30,000
    20% premium assistance

    Over $30,000
    Full Rate

    So if you make over 30k/year, then you pay the regular.
    The regular for
    1 person is 60.50
    2 people is 109
    3 or more is 121.


    •  Can't get this out enough (1+ / 0-)
      Recommended by:

      I have always thought proponents of single payer should run ads where they show Canadians (only we don't know they're Canadians) saying things like "my knee replacement cost me no more than my monthly premium of 60 bucks".

      And then have the announcer say - If Canada has it, why can't we?  Single Payer. It's What Works.

      •  Just the facts! (0+ / 0-)

        I get some weird comments from Obama supporters when I post this information.  Guess I am spozed to just know we can't do it!  It is a shame and a pity we ended up being steered to the convoluted ACA exchanges that cannot control the costs at any level.
        Please share the links to the Canada Board of Health when ever this is discussed!

        •  I have long posted those links (1+ / 0-)
          Recommended by:

          Healthcare is my major issue and it has been for years.

          Americans simply do not realize how truly bad they have it in comparison to other countries and there needs to be a really good media campaign to wake them up and it has to be really simple.

          Another point I try to make is that the ACA just shared the costs between the individual and the government, it didn't lower them and it doesn't have any mechanism to lower them despite what people try to claim about the function of the Medical Loss Ratio.

          Anyway, keep up the fight for single payer! We'll get it eventually because it is the only thing that actually works. Hopefully we'll get it before half of America is dead or bankrupt.

  •  Maggie Mahar Disagrees (1+ / 0-)
    Recommended by:
    amk for obama

    In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof.

    by jsfox on Mon Aug 15, 2011 at 07:36:29 PM PDT

    •  That's the blog and peeps I'm refuting. (2+ / 0-)
      Recommended by:
      amk for obama, neroden

      If you got something better, please post a comment or diary with actual statistics that prove I'm wrong. I have proved they Maher & Emmanuel are wrong. You do the same to me if you can.

      How quickly the Pacifist becomes the Warrior when it's "our side" doing the killing.

      by edg on Mon Aug 15, 2011 at 07:43:14 PM PDT

      [ Parent ]

      •  I appreciate your post. But I am still seeing a (0+ / 0-)

        cost bending trend except in Part D, which as you say, is not explained. So I conclude, the bending curve has started to bend and Obama gets credit for that.

        One bitter fact is two bit hacks populate the third rate fourth estate who are truly the fifth columnists. So, how did Obama piss you off today ?
        Call the media when they Lie

        by amk for obama on Mon Aug 15, 2011 at 07:49:03 PM PDT

        [ Parent ]

      •  So let me see (0+ / 0-)

        I should buy your analysis over folks that actually look at this stuff daily , study it and actually understand it. No offense meant, but call me less than convinced.

        In the choice between changing ones mind and proving there's no need to do so, most people get busy on the proof.

        by jsfox on Mon Aug 15, 2011 at 07:51:10 PM PDT

        [ Parent ]

      •  But you make a lot of unsourced (0+ / 0-)

        claims --

        For example -

        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.

        For example - I checked CMS' numbers on total Part A covered services, and I'm not seeing unusual spikes in inpatient services.

        I'll give you MS-DRG (though, you need to define the impact) - part of which was due to the understandable lack of hard CMI data (and CMS always tends to guess high), but frankly - because the for profits and "not for profits in name only" love more complex systems... Bring in a reimbursement consultant to maximize profit centers and there's gold in those new tiers.

        Full Disclosure: I am an unpaid shill for every paranoid delusion that lurks under your bed - but more than willing to cash any checks sent my way

        by zonk on Mon Aug 15, 2011 at 08:15:46 PM PDT

        [ Parent ]

        •  Read the 2009 trustee's report. (1+ / 0-)
          Recommended by:

          Page 54. That paragraph is lifted from there word for word. Or perhaps you don't trust the CMS trustees?

          The first 3 "Points of Interest" are from trustee's reports and the fourth is from Kaiser Family Foundation.

          I list my sources in the last section of the diary "Sources".

          How quickly the Pacifist becomes the Warrior when it's "our side" doing the killing.

          by edg on Mon Aug 15, 2011 at 08:42:47 PM PDT

          [ Parent ]

  •  We could use much more of this. (1+ / 0-)
    Recommended by:
    marty marty

    Dispassionate analysis of the effects of policy, even if mistaken, provide a node upon which a useful discussion can develop.

    I would ask, is it possible to compare the spending increases in Part A & B prior to 2006?  At the very least, it is possible to ascertain a measure of the size of the fluctuations in the changes,  giving some sense of the significance of the both the outliers and the recent slow growth.

    Finally, since you suggest that the slow economy may produce a noticeable slowing in the spending increases.  However, again we might assess the propensity of seniors to self-ration by looking at the correlation between the growth of Medicare expenditures and the GDP prior to 2006.

    Justice deferred is justice denied. -MLK

    by zephron on Mon Aug 15, 2011 at 08:03:10 PM PDT

    •  2001 - 2010 data (2+ / 0-)
      Recommended by:
      zephron, neroden

      This data is NOT adjusted for inflation. If it were, the results would be quite different as there was 23% inflation between 2001 and 2010. The 2010 Part A value of 247.9 billion is 200.1 billion in 2001 dollars.

      Drawing conclusions on inflated values is kind of pointless. I'll do an inflation-adjusted version sometime to see what the reality truly is. In any event, drawing a conclusion on 18 months of preliminary 2010-2011 data without accounting for external factors is meaningless. It's just too early to tell.

      Year Part A % Inc   Part B % Inc
      2001 141.7     99.5  
      2002 148.0 4.4%   108.8 9.3%
      2003 153.8 3.9%   124.0 14.0%
      2004 167.0 8.6%   134.3 8.3%
      2005 184.1 10.2%   151.5 12.8%
      2006 191.9 4.2%   169.0 11.6%
      2007 203.1 5.8%   178.9 5.9%
      2008 235.6 16.0%   183.3 2.5%
      2009 242.5 2.9%   205.7 12.2%
      2010 247.9 2.2%   212.9 3.5%

      How quickly the Pacifist becomes the Warrior when it's "our side" doing the killing.

      by edg on Mon Aug 15, 2011 at 08:35:42 PM PDT

      [ Parent ]

      •  Well, then, even doing the clearly wrong thing ... (1+ / 0-)
        Recommended by:

        ... we get that for part A the mean growth rate is ~6% with a std. dev. of 4% and for part B, 9% again with a std. dev. of 4%.  Including inflation would shift the means down a bit and potentially reduce the variance a bit, depending upon how significant self-rationing is.  However, I think it is clear that finding 2% and 3% one year is not statistically significant (and not even terribly unlikely).

        I agree completely that identifying a trend in noisy data on the basis of a single or pair of data points is ludicrous.   Unfortunately, innumeracy is rampant.  Especially when there is a political agenda in play.

        Justice deferred is justice denied. -MLK

        by zephron on Mon Aug 15, 2011 at 09:09:01 PM PDT

        [ Parent ]

  •  There's much more to do (0+ / 0-)

    But it's important to point out--and campaign on--the idea that Republicans all voted to repeal this small step forward.

    The most significant thing that could be done right now is give Medicare the option of negotiating drug prices as the VA does. This is the most blatant abuse of lobbying power in our government right now, and it can be remediated "with the flick of a Bic" to create really significant savings.

    The second move forward (in the stimulus bill, in fact) is electronic medical record maintenance. I love my senior neighbors, but have to admit that for a few of them doctor-hopping is one of their chief recreational activities. The coordination of tests would save a bundle.

    And of course, there's the built-in abuse of companies like "Hover-Round" (If you've fallen in the last year our doctor will write you a prescription so you don't need to exercise at all any more.) There is also nursing home abuse--of which Bush's Carlyle Group (Manor Care) and Florida Governor Rick Scott's former company have been charged.

    These changes can't be summarized in a sound bite. It's hard for Obama to explain, and easy for the GOP to pervert. What's necessary is for AARP to get aboard, letting seniors know that some changes moving forward are sensible and won't hurt their real benefits.

    Quidquid latine dictum sit, altum viditur.

    by MrMichaelMT on Tue Aug 16, 2011 at 04:05:05 AM PDT

    •  You assume Obama will have good things in (0+ / 0-)

      his reform Medicare package.  Based on all of actions to date, don't count on it and I would be upset with AARP to get aboard until we see the actual reforms.  Fixing Medicare D could have been done in the Health Care Reform bill.

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