Medicare's cost outlook is improving
Over the past few years, health care spending has been growing a lot slower than it did in the past. This is a big deal because it means everyone's health care budget — including the federal government's — will go further.
For a while, no one wanted to get too excited about the spending slowdown, because health care experts assumed it was a result of the broader economic crash of 2008. So the assumption was that as the economy improved, health care spending would resume its out-of-control growth. But now the economy is improving, and health care costs are still growing slowly. On Monday, the Medicare trustees seemed cautiously optimistic that this trend would continue.
"The Trustees are hopeful that U.S. health care practices are in the process of becoming more efficient as providers anticipate a future in which the rapid cost growth rates of previous decades, in both the public and private sectors, do not return," the latest report says.
Obamacare is helping
Obamacare's cuts to Medicare spending are at least part of the reason the trustees are more optimistic. The Affordable Care Act calls for big cuts in Medicare's payments to doctors, hospitals, and other health care providers, and it also includes measures that aim to make the health care system more efficient.
The trustees have previously said the health care law extended the life of Medicare's trust fund, and they said Monday that Obamacare's cuts will "add substantial further savings" on top of the slower growth caused by other economic factors.
But that's assuming Congress lets the law's cuts happen as scheduled — an assumption the trustees have hesitated to make before.
A lot of this depends on Congress
Predicting Medicare spending is no easy task. It requires a lot of assumptions about the economy and the price of health care, and also about Congress. The trustees have to guess what Congress will do with Medicare rates, and whether it will let scheduled cuts take effect.
This year, for the first time, the trustees are assuming that the biggest scheduled cut to Medicare spending won't happen. Medicare's payment formula calls for massive cuts every year to doctors' pay — they're around 25 percent now, more than doctors could absorb. Every year, though, Congress delays the scheduled cut. The Medicare trustees assumed that Congress will keep blocking the reduction in doctors' pay, so the savings from a 25 percent cut will never actually appear.
But the trustees assumed that Congress won't block most of Obamacare's Medicare cuts. If those cuts are allowed to take effect, the trustees said, Medicare spending will grow to about 6.9 percent of the total economy by 2088. If Congress blocks the Affordable Care Act's cuts, Medicare would instead eat up about 8.4 percent of the economy instead.