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The Health Spending Slowdown: Fact or Fiction?

Posted by John McDonough  February 13, 2013 09:24 PM

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Last evening, we had two remarkably divergent views on health care cost increases and the Affordable Care Act. First, here's President Barack Obama in his State of the Union speech:

"Already, the Affordable Care Act is helping to slow the growth of health care costs."

Pretty clear.  Then we have these comments from House Speaker John Boehner:

"Obamacare is driving up costs, jeopardizing coverage, and making it harder for small businesses to hire."

So who is right?

Luckily, just last week, the Congressional Budget Office, the non-partisan federal score keeper issued its annual Budget and Economic Outlook, Fiscal Years 2013-2023, containing this pertinent analysis: 

"In recent years, health care spending has grown much more slowly both nationally and for federal programs than historical rates would have indicated. (For example, in 2012, federal spending for Medicare and Medicaid was about 5 percent below the amount that CBO had projected in March 2010.) In response to that slowdown, over the past several years, CBO has made a series of downward technical adjustments to its projections of spending for Medicaid and Medicare. From the March 2010 baseline to the current baseline, such technical revisions have lowered estimates of federal spending for the two programs in 2020 by about $200 billion -- by $126 billion for Medicare and by $78 billion for Medicaid, or by roughly 15 percent for each program." (page 56)

On Monday, Annie Lowrey explored this question in a New York Times article: "Slower Growth of Health Costs Eases Budget Deficit:"

"Health experts say they do not yet fully understand what is driving the lower spending trajectory. But there is a growing consensus that changes in how doctors and hospitals deliver health care -- as opposed to merely a weak economy -- are playing a role. Still, experts sharply disagree on where spending might be in future years, a question with major ramifications for the federal deficit, family budgets and the overall economy. ...

"One sign that the slowdown might be lasting is that it seems to have started before the recession took hold and is continuing even as the economy picks up. 'The more we look at the data, the more it seems to me that the cost curve did bend before the recession,' said Charles Roehrig of the Altarum Institute, a health care research organization. Additionally, health spending did not seem to decline or slow down more in states that were hit harder by the economic downturn, and it has flattened for Medicare patients, even though they tend to be sheltered from the effects of economic fluctuations."

It may not last -- in fact, one of the best bets you can make is that this current slowdown will not last.  Still, the savings from this period will endure because of a lowered baseline trending forward for years to come.  We had a huge health spending slowdown in the 1990s during Bill Clinton's Administration, and that didn't last.  But the benefits hung around for years.

And in an example of how good news can spread, the declining medical inflation rate has created an unexpected window of opportunity to address the 16-year old Medicare physician payment mess known as the "Sustainable Growth Rate." Prior to this recent analysis, CBO has projected the 10-year cost of eliminating the SGR at about $240 billion. Under its new analysis, the 10 year cost is now estimated at $138 billion.

Here's CBO again:

"The estimated cost of holding payment rates constant is much lower relative to this baseline than was the case under previous CBO baselines, primarily because of lower spending for physicians' services in recent years. ... Actual spending has been lower than projected and lower than the spending targets inherent in the sustainable growth rate for the past three years." (page 31)

For years, both parties want to eliminate SGR and have been unable to do so because of ten year costs exceeding $300 billion. Now, $138 billion is nothing to sneeze at, but there may never be a more affordable moment to get this monkey off everyone's back, and to win policy concessions from the physician community in return. My fingers are crossed that Democrats and Republicans can come together on this.

So good news. And who's right, Obama or Boehner? No contest.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »

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