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Thursday, June 6, 2013

Medicare Trustees’ Report Shows Growth of Medicare Costs Slowing

Marc Steinberg

Deputy Director of Health Policy

According to the Medicare Trustees’ report released last Friday, the Medicare hospital insurance trust fund (which covers the hospital portion of Medicare expenditures), is now fully funded until 2026. That’s two years longer than was estimated in last year’s report, and nine years longer than projections prior to enactment of the Affordable Care Act. But what’s more significant than the actual year cited in the report is the encouraging trend in Medicare’s costs that underlies the projection: Health care costs, and Medicare costs in particular, are growing more slowly than in the past. This is encouraging news for Medicare and for the 50 million seniors and people with disabilities who rely on it. If these trends continue, Medicare’s future fiscal challenges become significantly more manageable.

There’s generally too much focus on the trust fund exhaustion date as a measure of Medicare’s fiscal health. Despite the rhetoric one hears sometimes, Medicare is not going bankrupt. In fact, the trust fund has been projected to run short in every decade since Medicare began. Congress and the President have always acted to keep the program in balance, regardless of which political party was in the majority at the time.

What matters most in the new Trustees’ report is not the specific year projected, but rather why the trust fund gained two years of funding. There were no big changes in Medicare law since last year. Instead, the new projection reflects an expectation that Medicare’s per person costs will continue to grow more slowly than was previously projected. This is the latest in a series of encouraging reports showing that since 2010, when the Affordable Care Act became law, the rate of health care cost growth has slowed: For example, the Congressional Budget Office recently projected that Medicare spending is expected to be $590 billion less over the next 10 years than was forecast in 2010. 

There are many reasons why per person health care costs, and Medicare costs in particular, are growing more slowly than in the past. Some of the change is no doubt due to the recession—when incomes drop, people spend less on health care. But some of the changes, at least in Medicare, appear to be the early returns on innovations included in the Affordable Care Act. For example, the law pushes hospitals to reduce the number of avoidable readmissions. Hospitals have responded by taking steps like improving discharge planning. And in 2012, there were 70,000 fewer readmissions, even as the number of seniors and people with disabilities relying on Medicare grew.

It’s important to note that this progress in reducing the rate of Medicare cost growth has been achieved without any reductions to the Medicare benefits on which seniors and people with disabilities rely. In fact, Medicare coverage is better today than it was prior to passage of the Affordable Care Act. And if these lower rates of Medicare spending growth continue, they should translate to slower Medicare premium increases for beneficiaries.

Certainly, Medicare will continue to face significant challenges in the coming decades as baby boomers retire and turn to Medicare for health care security. But last week’s Trustees’ Report is further evidence that we are making progress on Medicare’s costs. The more we can do to keep health care costs growing more slowly, without reducing access to care, the more manageable our longer-term health care and fiscal problems become. The Trustees’ Report reminds us that although we haven’t solved everything, we’re moving in the right direction. The innovations launched by the Affordable Care Act are starting to increase value and quality without cutting benefits. These are the kinds of changes that Medicare needs.