Now for the good news – Medicare costs are falling
Remember the dire warnings about Medicare? Its costs are growing at an unsustainable rate. They will drive up federal deficits for years to come. The program could become insolvent in a few years. As it turns out, Medicare may not be in such bad shape, after all. The Congressional Budget Office recently reported that the program’s cost growth is not out of control. In fact, Medicare spending has actually started to fall.
Remember the dire warnings about Medicare? Its costs are growing at an unsustainable rate. They will drive up federal deficits for years to come. The program could become insolvent in a few years.
As it turns out, Medicare may not be in such bad shape, after all. The Congressional Budget Office recently reported that the program's cost growth is not out of control. In fact, Medicare spending has actually started to fall. (To read the full report, click here.)
In 2011, CBO reported that Medicare spent about $12,000 on average for each beneficiary. This year, the number will be about $11,200. And by 2017, it is projected to be less than $11,000. (All of these numbers are adjusted for inflation for purposes of comparison.)
And CBO's projections of future costs have been steadily falling, as well. In 2010, spending per beneficiary was predicted to have reached almost $12,000 this year. And in 2006, it was predicted to have reached almost $14,000.
The good news on spending is not limited to Medicare. Cost growth is moderating across American health care.
One school of thought sees the recent recession at work. Many people who lost their jobs also lost their coverage, and they can no longer afford health care.
But Medicare is a government program. Its benefits are guaranteed to those who are elderly and totally disabled regardless of the state of the economy. The recession may have reduced private health care spending, but it would not directly impact government outlays.
An alternative explanation is that underlying changes in the practice of medicine are at work and that physicians and hospitals are becoming more cautious about running up costs. CBO found that Medicare beneficiaries are using less hospital care and fewer expensive drugs, suggesting that providers are ordering such costly forms of care less often.
If that is true, then government policy initiatives may deserve some of the credit. The Affordable Care Act includes several of them, such as incentives to reduce readmissions to hospitals too soon after patients are discharged and to improve overall quality and efficiency.
In the long-run, Medicare still faces major challenges as the number of beneficiaries grows with the aging of the baby boomers and expensive new treatments continue to be developed. However, the program may be in better to shape to deal with those challenges than we had thought. The dire warnings may be quite premature.
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