Unbiased Analysis of Today's Healthcare Issues

Is Medicare no longer a budget buster?

Written By: Jason Shafrin - Jul• 28•15

Not entirely, but the 2015 Medicare Trustees report is certainly more optimistic than in the past. Brookings reports:

The Trustees have dramatically lowered their projections of long-run Medicare expenditure growth. In 2009, for example, the Trustees projected that Medicare spending would reach 11.2 percent of GDP by 2080—compared with just 6 percent in this year’s report. The change in the spending outlook is attributable to the effects of the ACA on provider reimbursements and a much slower rate of increase in actual Medicare expenditures since 2009. Excess cost growth in Medicare—the difference in the growth rates of per beneficiary spending and per capita GDP—is now expected to be quite low relative to historical averages.

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So what’s the problem? The current projection is based on current law; however, law is likely to change, particularly laws that mandate reductions to provider payments. Specifically,

The Affordable Care Act included provisions that lowered the annual increases in provider reimbursements. Before the ACA, payments were to be updated each year by an amount equal to the growth of input costs (hospital wages, etc.); after the ACA, the payment update equals the growth of input costs less the rate of increase in economy-wide productivity.

These provisions are likely to be repealed. After accounting for this unrealistic decreases to payments to providers, “Medicare spending rises to 9.6% percent of GDP, about 50% higher than in the baseline scenario.”

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