Curb your enthusiasm about those Medicare savings

By Robert J. Samuelson

Contrary to some media reports, the Medicare monster hasn’t been tamed. But it has been made a little less unruly. To be precise: Spending is regularly falling below projections, creating the prospect of hundreds of billions of savings over decades. “It’s a pretty big deal,” says Tricia Neuman of the Kaiser Family Foundation, a health-care think tank, “because the slowdown has been sustained year after year.”

Here are the startling numbers. In 2014, average spending per Medicare recipient is expected to be $1,048 lower than the Congressional Budget Office (CBO) projected in 2010, says Neuman. With today’s trends, the gap widens to $2,369 in 2019. The cumulative savings are impressive. For 2011 to 2020, CBO thinks Medicare spending will total $715 billion less than reckoned in 2010.

This has prompted some loud applause. “Medicare: Not Such a Budget-Buster Anymore,” headlined a New York Times story. The savings in 2019, it said, would be “greater than what the government is expected to spend that year on unemployment insurance, welfare and Amtrak — combined. . . . Widely discussed policy changes, such as raising the estate tax, would generate just a tiny fraction” of Medicare’s savings.

Let’s not get carried away.

True, the savings are significant. Still, they don’t alter the nation’s central budget problem: Rising spending on the elderly is dictating government’s priorities. It’s squeezing other programs — from defense to medical research — while feeding big deficits and creating pressure for higher taxes.

Let’s go back to the numbers.

Even after the savings, average Medicare spending per recipient is estimated at $11,328 in 2014 and $12,545 in 2019. The CBO projects spending on Medicare — health insurance for the population 65 and older — at $8.2 trillion from 2015 to 2024. That’s about 17 percent of estimated federal spending of $47.4 trillion over the same period. Social Security adds another $9.9 trillion, 21 percent of total spending. Budget deficits are projected to total $7.2 trillion for these years.

One reason that the slowdown in Medicare spending per recipient doesn’t have a bigger effect is that there will simply be more elderly people. Between now and 2039, slightly more than half (55 percent) of the rising cost of Social Security and federal health programs reflects an aging population, estimates the CBO.

What also counsels caution is this: No one truly grasps why Medicare spending has slowed so abruptly. A detailed CBO study threw cold water on many plausible explanations. What we don’t understand could easily reverse.

One theory is that Medicare’s slowdown is part of the larger slowdown in health spending, which is widely — though not universally — attributed to the Great Recession. People lost insurance or couldn’t pay higher deductibles and copayments. So they went to doctors less often. Health spending weakened. Since 2009, it has increased at a 3.7 percent average annual rate, a big drop from the 1990-2008 average of 7.2 percent, according to government figures.

The trouble is that it’s hard to see how this argument applies to Medicare. People didn’t lose coverage. Medigap insurance — which pays for many expenses not covered by Medicare — didn’t shrink dramatically, the CBO found. So how did the Great Recession depress spending? Not clear.

Another theory credits the Affordable Care Act (Obamacare), because it imposed limits on Medicare’s reimbursement of hospitals and other health-care providers. Maybe. But there’s a big problem of timing. Congress didn’t pass the ACA until 2010, and the Medicare slowdown started earlier. From 2000 to 2005, Medicare’s growth averaged 7.1 percent annually, the CBO reported; from 2007 to 2010, the average was 3.8 percent. This suggests that larger forces than the ACA’s rules were at work.

One possibility is the incipient influx of baby boomers into Medicare. Paradoxically, they reduce Medicare’s average costs, because younger retirees are healthier and have lower spending than older retirees. But this has long been known; earlier projections took it into account.

Assuming that the quality of health care hasn’t been compromised (another big unknown), the Medicare savings are good news. But they’re no panacea. The sensible response is to cheer — and then to curb your enthusiasm.