Here is the truth: Both Standard & Poor's (S&P) and the Congressional Budget Office (CBO) now have 18 months of hard data showing that Medicare spending has begun to slow dramatically. Health reform legislation has not yet begun to kick in to pare Medicare payments, but something is changing on the ground. As I pointed out in an earlier post, Medicare spending began to plunge in January of 2010. After levitating by an average of 9.7 percent a year from 2000 to 2009, CBO's monthly budget reports show that Medicare pay-outs are now rising by less than 4 percent a year. (Over the year ending June 2011, Standard & Poor's reckons that the cost of Medicare claims rose by just 2.5 percent. But S&P's Medicare index does not include Medicare Advantage, the private sector option that costs the government significantly more than traditional Medicare.)
Pessimists argue that Medicare pay-outs often fluctuate, and that this is just a short-term drop. Moreover, the naysayers insist, over the next few years, a horde of aging Hippies will push Medicare's outlays higher. But hard numbers fly in the face of their assertions. Over 40 years, Medicare pay-outs have rarely dipped, and even a cursory glance at U.S. birth rates makes it clear that the baby-boom bulge will not have a significant impact on Medicare expenditures for another ten to fifteen years. By then, the Affordable Care Act (ACA) will have had a chance to rein in health care spending.[...]
To put the slow-down in context, consider the chart below. In the three decades prior to 2000, Medicare inflation slipped below 5 percent only twice, and the first time, it bounced back the very next year. The only sustained slow-down came at the end of the 1990s, following cutbacks in Medicare payments that were part of the Balanced Budget Act of 1997. But at the beginning of this century, Medicare's outlays once again spiraled.
EXHIBIT 1 Annual Growth Rates In Per Enrollee Payments For Personal Health Care, Medicare And Private Insurers, 1970–2000
[...]This slow-down is not a result of Congress cutting Medicare spending. Instead, as former White House health care adviser Dr. Zeke Emanuel pointed out in Part 1 of this post providers are "anticipating the Affordable Care Act kicking in 2014." They can't wait until the end of 2013, he explained: "They have to act today. Everywhere I go," Emanuel, told me, "medical schools and hospitals are asking me, 'How can we cut our costs by 10 to 15 percent?' They know that they must trim their own costs if they are going to lower the bills that they send to Medicare.'" Like Orszag, Emanuel is seeing a "shift toward value in the health sector."
It's a shift from rewarding providers by volume to rewarding them by outcome, and it appears that providers are taking this new, rational, world of health care delivery seriously and are figuring out how to make systems more efficient. Which means the rate of increase in spending in Medicare is slowing down, a lot. By comparison, the growth rate of health care costs covered by private insurers increased by 7.5 percent—3 times the rate S&P reckons for Medicare.
Which reinforces a simple point Atrios made a few days ago: Putting more people into Medicare makes a lot more sense right now than keeping people out. It also means President Obama should be fighting to preserve Medicare while touting this success of the signature policy accomplishment of his first term.