Who's Next to Face Health Care Cuts?


When Americans think about health care, they worry about rising costs, but one service they don't often fear is the quality of medical care in their senior years.

That's because Medicare, the program that covers individuals 65 and over, is considered one of the success stories in modern insurance. People have found that Medicare programs, while in need of some tweaks, have always been there for seniors, and thank goodness for that, especially since the cost of medical care increases significantly in the final years of life.

The (sort of) good news: the cost of Medicare (and Medicaid) is not rising nearly as fast as private insurance costs, write Joseph Antos and James C. Capretta, and some changes made in the Affordable Care Act (ACA) may be attributable to that.

Medicare spending per enrollee has slowed markedly in the years after the 2010 enactment of the ACA (Affordable Care Act). In nominal terms, per-capita Medicare spending rose just 0.8 percent in 2016, down from 2.0 percent in 2015. Inflation-adjusted per-capita Medicare spending actually fell in 2016, by 0.5 percent, after growing 0.9 percent in 2015 and staying flat in 2014. ...

The ACA included large reductions in Medicare’s fee-for-service payment rates for various providers of medical services. In particular, the law introduced “productivity adjustments” to the updates for institutional providers of services, including hospitals, which lowered payments for these providers relative to prior law. The ACA also reduced payment rates for Medicare Advantage plans.

The bad news, say the authors, Medicare is facing some serious problems because of the growing number of eligible recipients, the limits to per recipient expenses, and the continuing rise in the costs of medical treatment despite government-imposed caps.

It is a relatively straightforward proposition to impose payment rate limitations in Medicare and Medicaid, while private insurance plans must negotiate contracts with providers of medical care. The ACA imposed large reductions in what Medicare pays hospitals and other providers, as well as Medicare Advantage plans, compared to prior law. ... The CMS actuaries who produce cost projections for Medicare and Medicaid have estimated that the large divergence between what private and public insurance pays for services will widen dramatically in coming years as the cuts imposed by the ACA ... compound and grow over time.

The quality of care for Medicare enrollees goes down when each recipient receives a smaller amount of the same pot of resources. At the same time, the cost of care is not going down enough to make up for the increase in the number of enrollees.

Worse still, the payment rate reductions might lower costs for the government, but they also reduce the overall efficiency of the health system or cause limits to services offered because the private and public sector are no longer on an even playing field.

That's a problem, and reflective of the overall crisis that America is facing in handing over one-sixth of its economy — $3.3 trillion — to the industry that is health care.

A recent report from the Centers for Medicare and Medicaid Services reveals that for the third consecutive year, national health spending has exceeded economic growth; health spending grew 4.3 percent in 2016, 1.5 percentage points faster than gross domestic product, or GDP.

While annual spending has actually slowed to a small degree since 2002, in the six years after the Affordable Care Act, the average annual rate of expenditures (inflation-adjusted) grew 2.8 percent. In the seven years prior, the average annual rate was 2.7 percent. The post-ACA numbers are higher than pre-ACA figures even when accounting for population growth.

Health care is a worthy pursuit, but unrestrained increases in expenses will never be met with a commensurate increase in overall health of the nation. And increased spending in this one area drains overall productivity of the economy.

If changes are not made in incentive reform, cost controls, and medical efficiencies, the quality of everyone's care is affected.

For Medicare beneficiaries, those who've paid into the system their entire working life, there are some viable options to slow the cost curve.

Medicare beneficiaries should have stronger incentives (in the form of lower premiums) to enroll in integrated care arrangements that improve quality and lower costs compared to the unmanaged fee-for-service program. The federal government and states need to coordinate efforts to reduce the costs of caring for frail patients who are eligible for both Medicare and Medicaid.

As for everyone else, expect higher taxes or more out-of-pocket expenses if government is going to cover it all. Otherwise, look for innovations in the relationship between you and medical practitioners, an idea previously discussed by contributors to TPOH.

Are you dealing with increased medical costs or seeing care for a senior relative go down? How are you coping with the changes?