At first, chief Medicare actuary Rick Foster thought it was a mistake, perhaps a glitch in data collection. No other explanation made sense. Congress had just passed far-reaching health-care legislation that mandated cuts in Medicare spending. But the law was so new that rules for implementation had not been written.
As spring wore into summer, the trend inexplicably held. Spending growth on outpatient services, known as Part B, fell sharply.
“We thought, ‘Wow, what’s happening?’ ” Foster recalled in an interview. “Part B cost growth has slowed down so much, we’re seeing virtually the lowest rates ever.”
Budget analysts treat the news as a temporary aberration that is unlikely to brighten a bleak outlook dominated by this fact: An average of 10,000 baby boomers will turn 65 every day for the next 20 years, eventually doubling the program’s enrollment. Annual Medicare spending is projected to reach nearly $1 trillion by 2021, approaching a fifth of all federal outlays. If per-person costs return to the usual rate of growth — and history suggests they will — the program will rapidly become the biggest driver of the national debt.
But the drop serves to highlight an often-overlooked truth: Medicare spending per person is rising more slowly than spending in the private health sector. And, because of the cuts that were part of last year’s Affordable Care Act, it is expected to mirror overall growth in the economy for much of the next decade, staying well below targets set by Congress.
“Medicare is not out of control,” said Robert Berenson, vice chairman of the congressionally appointed Medicare Payment Advisory Commission, which studies the program’s finances. “This bloated and inefficient program is not bloated and inefficient.”
Instead, the immediate and inescapable problem is a demographic one: the enormous wave of baby boomers who started enrolling this year. That concern suggests different solutions, experts say, from those needed to cope with runaway costs.
The politically charged debate over Medicare tends to proceed, however, as though the solution lies entirely in squeezing more savings out of the program, a goal that budget experts say will be difficult to reach. Not only are the proposed remedies largely untested, but there is a fundamental ideological divide over which ones to pursue.
President Obama and congressional Republicans agree that reining in Medicare is critical to reducing deficit spending and, therefore, the government’s need to borrow. But most Republicans say the Affordable Care Act won’t work and have vowed to repeal it. Many favor ending Medicare as an open-ended benefit and limiting spending for each beneficiary. Private insurance companies would compete with traditional Medicare, with the hope that vying for clients would push down costs, as some say has happened in the Medicare prescription drug program.