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Understanding the Medicare Spending Slowdown: Structural vs. Cyclical Changes

In a presentation by Chapin White, Ph.D., at the American Enterprise Institute, key insights were shared regarding the recent changes in Medicare spending. The discussion covered the nature of the current slowdown—whether it is cyclical or structural—and the implications of the Affordable Care Act's (ACA) proposed cuts. The presentation explored long-run Medicare fiscal imbalances, questioning the viability of current projections. Concerns over unfunded Medicare liabilities and the potential impact on the U.S. economy were highlighted, prompting further examination of provider payment policies and health care pricing mechanisms.

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Understanding the Medicare Spending Slowdown: Structural vs. Cyclical Changes

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  1. Medicare Has Changed, Projections Not so Much Chapin White, Ph.D. Presentation at the American Enterprise Institute June 3, 2013

  2. Pop Quiz Current Medicare spending slowdown is … • cyclical • structural ACA Medicare cuts are … • reasonable • not reasonable Long-run Medicare fiscal imbalance is … • #1 threat to our nation’s economic wellbeing • based on questionable assumptions   

  3. Cyclical vs. Structural Cyclical factors • recession Structural changes • provider payment policy • cost reimbursement  tight prospective rates • usual, customary, reasonable  SGR

  4. Excess Cost Growth Slowdown Source: Author’s calculations based on CBO projections (2012).

  5. Are ACA cuts reasonable? ACA reduces annual price growth by 1.1 percentage points Trustees report says • current-law projections “not reasonable” • cuts “will not be viable” in the long run

  6. What’s a Reasonable Hospital Price? Source: Author’s analysis based on Stargardt Health Economics (2008).

  7. Are the SGR cuts reasonable? SGR calls for 25% cut in Medicare physician fees

  8. What’s a Reasonable Orthopedist Income? Source: Author’s analysis based on Laugesen and Glied Health Affairs (2011) and Lasser JGIM (2008).

  9. What’s a Reasonable Primary Care Income? Source: Author’s analysis based on Laugesen and Glied Health Affairs (2011) and Lasser JGIM (2008).

  10. Short-run vs. Long-run Growth Short run (2013-2022) • extrapolates recent trends • heavy demographic headwind • HI hanging on • Long run (2023-) • growth spikes back up • assumes volume surges • reasonable? • HI trust fund takes a nosedive Fig. III.B5. Cumulative HI Taxes minus Expenditures (present value, trillions)

  11. Long-Run Growth Assumption Technology

  12. What About Prices? CMS sets “take it or leave it” prices Providers choose how much to supply ACA lowers price growth permanently  lower quantity  lower spending

  13. What the ACA Does to Prices Supply Price Quantity

  14. Cognitive Dissonance Unfunded Medicare liabilities could sink the U.S. economy But ACA cuts “will not be viable”? Something that now seems unreasonable will happen • Medicare will consume huge resources, or • providers will make do with less

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