Good News for Medicare Spending, Bad News for Medicare Reformers

Medicare spending has slowed down over the past four years, news that has been met with cheers or begrudging acknowledgment, typically depending on your view of the Obama administration. While the cause of that slowdown is still up for debate, this good news for the federal budget can be seen as a double-edged sword. That’s because as near-term costs decrease, so does the pressure for Washington to actually do anything about Medicare.

Since Republicans took the House in 2010, Washington has spent a lot of time wringing its hands over the federal budget and deficit. In healthcare, that has meant a focus on Medicare and Medicaid, two of the largest drivers of long-term federal funding shortfalls.  Changes to Medicare, the extremely popular health program for Americans age 65 and up, were often viewed as a third-rail in politics, and a swift way to get elderly voters angry. But both parties offered up changes to Medicare while riding the merry-go-round that was repeated negotiations over the debt ceiling, the fiscal cliff and government funding.

Republicans took the toughest stance, advocating a two-year increase to Medicare’s eligibility age or entirely shifting the program over to private insurance companies. Democrats, for their part, also offered up sizeable changes. President Obama has called for increased cost-sharing for most Medicare beneficiaries and some cuts to Medicare providers in his annual budget proposals.

Getting to a place where Democrats and Republicans both edged near Medicare reforms didn’t just happen—increasing alarm over Medicare’s budget implications helped force the debate. But  findings from the Congressional Budget Office, which recently reduced projected federal health spending by 15 percent, to the Medicare Trustees report, which extended the solvency of the program’s hospital insurance trust fund an additional four years, ratchets down the urgency.

“Even though the long-term picture still looks pretty bad, the healthcare slowdown, to some extent, is slowing the Medicare discussion,” Marc Goldwein, a senior policy director at the Committee for a Responsible Federal Budget who staffed the Simpson-Bowles fiscal commission and the supercommittee, said in an interview. “It’s an excuse not to do debt reduction, period.”

And it’s not just that the pressure is off Congress and Washington thanks to a rosier budget outlook. Joe Antos of the conservative American Enterprise Institute, who recently served as a health adviser to CBO, said it makes potential congressional fixes all the more expensive.

“Without any additional legislation, the near-term ten year outlook for Medicare, according to CBO, looks a lot better than it has in quite a few years. So any proposal to reduce spending in Medicare becomes that much harder to pass—a one percent cut in some payment rate will produce a lot less savings than it did last year,” Antos said in an interview. “This takes the wind out of the sails of Medicare reform.”

Even one of the biggest champions of the slowdown in health costs, former Office of Management and Budget Director Peter Orszag, says the slowdown doesn’t mean Medicare doesn’t need fixing.

“I feel pretty strongly we still need policy action.  A lot of what’s been happening, in my opinion, is based on expectations of payment reform and other measures — and if we don’t fulfill those expectations, I fear much of the (surprisingly impressive) progress will be lost.  Some of the payment reform can be done administratively (and also by private payers), but frankly we would be much better off — and the reforms would be much stronger — if the changes were reflected in new legislation,” Orszag said in an email.

Of course, Congress has a reputation of barely being able to address anything that needs immediate attention, much less things that will become a problem years from now. But keeping a focus on the issue is perhaps the first step to reaching any kind of consensus, even if it won’t come until after the midterm elections, or more likely, when there is a new president in the White House.

Not everyone has a negative view of what the Medicare spending slow down means for the debate over what to do with the program’s costs.

“Yes, definitely, the slowdown in per capita expenditures does change the debate going forward as it relates to the reform of Medicare,” Bill Hoagland, a former insurance executive who spent decades on Capitol Hill working on budget issues, said in an interview. “But I, quite frankly, take a contrarian view…This allows Democrats and Republicans to look at fundamental operation of the program and get beyond the top line budget expenditures and look at what are the factors that are driving health care costs.”

Either way, the “silver tsunami” of Medicare enrollees isn’t slowing down as the years go by, even if the conversation on Medicare reform has dropped off.

Morning Consult