ACA's Cost Control Protects Medicare

(from Council of Economic Advisers Analysis of ACA)

Conservatives attack Obamacare for creating a large group of injured parties - those people whose policies are being cancelled; who are being told they have to buy an ACA-approved Essential Benefits policy (even though they don't personally need all the benefits offered); and who have to pay more than before, so they can be counted as part of a large and balanced risk pool that will benefit the sick and the elderly. Many hurt; few helped - this seems to be the argument.

What few realize is that the cost curve-bending effects of the ACA is having a dramatic effect on two programs (Medicare and Medicaid) that benefit 100 million Americans, a much larger group than the 5 million or so who may be losing their current policies.

The above chart shows how the Medicare/Medicaid spending projection line has moved down and to the right in the last three years. The above graph lines were put together by the CBO in their four most recent 10 year budget forecasts. The "gap" between the August 2010 and the May 2013 lines represents reductions in estimates of what the Medicare/Medicaid programs will cost going forward. The next chart (CBO/Doug Elmendorf ACA Cost Control Presentation) shows the magnitude of the savings.

This represents $1.2 trillion in savings over the 10 year period, due entirely to the cost slowdown that the CBO has observed since 2008. Initial thoughts were that the slowdown was caused by the recession, and that the rate of healthcare cost growth would pop back up as the economy got moving. That has not happened, and Elmendorf concludes that the Medicare/Medicaid cost slowdown (no cost increases since early 2010) represent structural changes in how healthcare is delivered, and they are likely to stay with us for some time. How long will the slowdown last? The CBO doesn't know, and last year, in their long range forecast, ramped the cost growth rate back up after 2018.

But this shifting of the cost curve had a big impact on the long range picture. Here's a chart from the 2010 Long Range Budget Outlook that shows Medicare/Medicaid spending growing to over 11.0% of GDP by 2035, up from the then current level of 5.5%. Such a cost growth rate ended up swamping the US in deficits and debt, as healthcare took up a larger and larger portion of the budget. This is when both sides of the political aisle were talking about our looming debt disaster, how we simply had to take concrete steps to put our country on a fiscally sound course. This is when Paul Ryan developed and first presented the Ryan Budget Plan, that turned Medicare into a voucher program, and Medicaid into a block grant program, mostly run by the states. In December of that year (2010), the Bowles-Simpson Commission issued its report, saying we had to cut 4 trillion out of our 10 year budget forecast to get ourselves right financially.

Three years later, in the 2013 Long Range Budget Outlook,  here's what the forward healthcare cost forecast looked like:

Healthcare costs move from flat to steeply rising in 2018; but notice that the 2038 end point number is now 8.0%, versus 11.0% in the forecast 3 years prior. This is a huge savings - not enough to put the country, and therefore Medicare/Medicaid on stable financial ground, but a big deal, nevertheless.

So what will this same chart look like in June of 2016, the month CBO normally puts out its annual Long Term Budget Outlook? I believe the cost slowdown is essentially structural - the medical system is discovering how to reinvent itself, learning to reward quality over quantity, and also finding ways to reward non-use (i.e., wellness through coordinated and better care) as well as use. I believe the slowdown will stay more or less in place for the next three years. Result: the 2042 out number will be 6%, versus 8%, or the earlier 11%, up only slightly tom the current level of 4.9%.

In other words, at long last the demon of runaway healthcare costs will have been tamed, and we will be on a stable financial path.

And there will be absolutely no reason to restructure Medicare or Medicaid.

In other words, the ACA, by unleashing a torrent of cost-containment innovation, is and will be the PRIMARY MEANS OF PROTECTING MEDICARE AND MEDICAID.

Democrats take note. This Medicare protection argument can be powerful. And it's true!