Can Medicare Uncouple from the Health Spending Gravy Train? Mark Pauly Comments on Trustees’ Report June 3, 2013
Trends and breaks • For as far back as we have data medical care spending (not “cost”) has grown faster than almost any other economic aggregate, with only a few blips at times of health reform debates. • Medicare spending growth is a little below but linked to private and total (versus Medicaid). • It is the growth in Medicare spending per enrolled that is the problem, not aging or numbers. • Can the link of overall spending to time, and of Medicare to private spending be broken?
The crucial unknowns • Price growth may be making up the difference between employment and spending growth in the recession, though data on this is mixed and best bet is 50-50 between price (as measured by medical CPI) and “use.” Has price growth fallen? • May be growth in non-(direct)-labor component—machines and pills? • Or something else?
The 2013 Trustees Report (from a non-insider) • Part A looks better; the key is lower growth in spending per beneficiary (though MA is dicey). • Part B still roaring ahead, share of GDP to double. • Overall share will do about the same so it is still not whether but when the tax burden doubles. • Which all depends on the path of future spending.
Other empirical regularities • Medical care “cost” per unit is not like the cost of oil; within broad limits it can be whatever we want. • Spending growth is largely driven by beneficial but costly new technology and excess growth in “prices” (really wages). • No proven model of either of these. • Other cost containment devices are intrinsically “one time”—but maybe not.
Thinking about spending growth in two parts • What determines the desired rate of spending growth (for individuals, private sector, public sector)? When does this change? • How is the system configured or reconfigured to achieve what is desired (tactics)?
Endogenous Tactics (not sustainable on their own) • Higher cost sharing (or more uninsured) • Removal of “waste” • Predetermined payment: “Here is all the money you can have (per person per year, per illness). Do the best you can!” • Only the last one is more than “one shot.”
A grab bag of theories on desired spending growth • Driven by growth in real income (Fuchs) • Driven by technological discoveries (Hall/Jones) • Public (not private) spending driven by excess burden of tax/deficit financing (Pauly and Baicker/Skinner). • Implies Medicare becomes Medicaid Lite (or vice versa).
My current favorite whiz-bang theory • Medical spending has grown faster than income; it is a “luxury” good. • Logically, no good can be a luxury good forever or it will eat up 100% + of income • So the share “automatically” has to stop growing. • When this will happen depends on preferences—but could it be happening now?