Research shows that Medicare spending has leveled off for the past decade, morphing from something that experts worried might break the federal budget to an unexpected bright spot.
The New York Times spotlighted this trend in an article this week, digging into a 2019 Health Affairs study co-authored by David M. Cutler, Ph.D., an economist at Harvard University and one of the main architects of the Affordable Care Act (ACA).
“When we first wrote about the spending slowdown, there was a lot of debate about whether it was temporary—due perhaps to the Great Recession. We didn’t think so, but it wasn’t a crazy line of thought,” Cutler told Fierce Healthcare in an interview.
Cutler said that theory has since been disproven but that “most analysts at least hedge more their outlook for spending growth in the future, even if they still see some increase above the rate in the past few years. Just as we don’t know exactly why spending slowed, we also don’t know whether it will return. But the impact on the federal budget has still been immense.”
The NYT estimates that federal spending might have been $3.9 trillion more since 2011 if spending on Medicare continued in the way that it had when experts predicted it would eventually blow a hole in the budget.
In addition, federal deficits would have been more than a quarter larger, according to the article.
Cutler’s 2019 Health Affairs study lists some legislative action that might have contributed to the slowdown in Medicare spending including the ACA, which encouraged bundled payments and accountable care organizations. However, Cutler and co-authors cited the fact that older Americans have fewer heart attacks and strokes thanks to new and fairly inexpensive medications as possibly the main reason for the spending slowdown.
“The reduction in acute cardiovascular events has been dramatic: Hospital admissions for ischemic heart disease are down 56% since 1999, and admissions for stroke have fallen by 41%,” the study said.
The Congressional Budget Office (CBO) tried to explain (PDF) in March why it overestimated Medicare spending.
“Most of the overestimate for the Medicare and Medicaid programs stemmed from an overestimate of spending per beneficiary, not an overestimate of the number of beneficiaries,” the CBO stated. “Less-than-anticipated spending for prescription drugs in Medicare Part D and for long-term services and supports … in Medicaid were two significant sources of error in CBO’s 2010 projections.”
Still, reasons for the slowdown in Medicare spending for the most part remain something of a mystery.
“The slower growth in Medicare spending is a combination of developments we understand well, such as improved cardiovascular health due to increased control of blood pressure and cholesterol—preventive care—and factors that we do not understand well, whatever is behind CBO’s technical adjustments (changes in public health and medical practice),” Paul B. Ginsburg, Ph.D., a professor at the University of Southern California, told Fierce Healthcare.
Ginsburg, the CBO’s deputy assistant director decades ago, said the CBO constantly reassesses its estimates and has done so since its inception in 1974.
When Ginsburg worked at the CBO, the studies churned out predicted that Medicare would run out of money.
“It’s routine that every year they take a look when they get the new data,” Ginsburg said. “They look at their projections, which ones were right on and which ones were off by a lot. And the ones that are off by a lot, they do the best they can to explain—at least to themselves—why they think their forecast was off.”
However, Ginsburg said that what’s not mentioned either by the NYT and Cutler’s 2019 study concerns just how Medicare Advantage (MA) plans might be affected by the spending slowdown.
“They likely have benefited from these trends a great deal,” Ginsburg said. “I would expect that they put more effort into preventive care to reduce cardiovascular disease and have benefited from reduced costs of treating these conditions.”
In addition, Ginsburg said physicians in general approach new medications that have not as yet developed any real-world data with caution.
“MA plans may have benefited to the extent that the medical groups they have contracted with on a risk basis may be more inclined than other physicians to pay more attention to information on effectiveness of different treatments,” said Ginsburg. “Another factor that has likely benefited MA plans is that the overall slowing of growth in Medicare spending is reduced policy makers’ urgency in taking aggressive steps to contain costs.”
However, Ginsburg quickly adds that these beneficial developments happened in the past. “If they continue, they MA plans will continue to benefit,” he said. “But they might slow down or speed up.”