Over the years, I’ve had the privilege of working in health care policy and research in a variety of areas, but in my heart, I am a Medicare payment policy person. Each year a number of reports come out on a more or less regular basis – the president’s budget, the Congressional Budget Office’s (CBO) long-term budget forecast, and others. These reports are a policy wonk’s delight and help set the stage for new opportunities and constraints in future payment policy changes.
Most recently, the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, which includes the heads of four government agencies and two public trustees, released their annual report. Each year this report educates Congress and the public about the fiscal health of the Medicare and Social Security programs. True to form, this year’s report contains a few tidbits that ought to keep my fellow policy wonks talking for at least a couple of weeks.
Medicare spending: slow and steady – for now, anyway
This year both the CBO and the Trustees found that Medicare spending is slowing. There were also two additional bits of good news: Part B premiums are not going up, and the program has added some years to its fiscal future. In my opinion, the phenomenon of slow growth in Medicare spending has been interesting. Some policy experts expected the economy to slow spending growth in the private insurance marketplace. But, what they did not expect to see was the lower spending in Medicare because for years the benefit designs and prevalence of secondary insurance have stayed the same and many people enrolled in Medicare do not work so they are less affected by high rates of unemployment than working people. However, budget estimates expected that the Affordable Care Act (ACA) would help the slowing as the law contains a number of provisions designed to reduce Medicare spending (e.g., reductions in payment to Medicare Advantage plans, hospitals and other health care providers).
One impact of the longer period of fiscal stability for Medicare is that program-wide payment cuts triggered by high spending will be further delayed. The ACA calls for establishing a commission called the Independent Payment Advisory Board (IPAB) that would oversee a process of developing recommendations to Congress to cut Medicare spending in response to high spending in the program. The IPAB has been one of the more divisive policies in the legislative history of the ACA and it has not even been established – much less active – because of the slowdown in Medicare spending.
Future outlook: storm clouds on the horizon
The “good news” from the Trustees about Medicare also came with a caveat – things may be looking up for now, but the long-term trend is worrisome. As a society we should not be complacent. Public Trustee Robert Reichauer said during a briefing last week that in the long term, spending is expected to increase at rates higher than gross domestic product (GDP), and stakeholders should be considering action soon to change that trajectory. The Medicare Payment Advisory Commission has said for years that it would probably be easier – and less disruptive to the health care system – to try to change that trajectory now rather than waiting to take action until the problem gets even bigger down the road.
Several options are evergreen for long-term structural changes in Medicare. These include moving to premium support, changing benefits and coverage (including that of supplemental coverage) to make beneficiaries more cost conscious and raising the eligibility age. Each of these has pros and cons and different levels of impact depending on their design and when they are implemented.
Updated methodology: more treats for the policy wonks
An important change to the methodology in the report is how the Trustees treat physician payment. Until this year, the report’s actuaries have followed the CBO’s precedent in estimating spending given current law. But, after the 17th time that Congress voted to patch the sustainable growth rate, it seems the actuaries have shifted their models to assume that small increases, rather than huge cuts, will be made to payments. As a result, these predictions could lead to more stable estimates for Part B premiums and Medicare Advantage payment rates, both of which flow from the actuaries’ overall spending estimates. If the CBO were to follow this precedent, it could improve the chances of making changes to physician payment policy, which were derailed this year. Because the CBO uses current law as its baseline for estimates, the cost of reversing the physician payment update policy has been estimated to be $150-$200 billion. If the baseline were changed to a forecast based on what Congress is likely to do over time, the cost to reverse this policy could be much more modest or even budget neutral.
The Trustees Report also contains actuarial forecasts for the Medicare Advantage (MA) program and projects that MA beneficiaries will grow to 30 percent in 2018. These estimates are more optimistic than earlier ones when policymakers were concerned that the ACA’s MA payment cuts would slow enrollment growth. The CMS demonstration tying MA payments to quality (at levels that exceeded those called for in the ACA) has helped to offset the cuts.
Ultimately it will be really interesting to see whether Medicare spending continues to slow down, and if so, what we can attribute the slow growth to – successful value-based care initiatives or a sea change in perception about the market? A slowdown in the introduction and dispersion of new technology? More people in MA with changes in benefit and network design and care management.