Thursday, August 5, 2010

Curve Bent!

Summary of the Social Security and Medicare Trustees' annual report, 2010:The red line represents Medicare (HI: Hospital Insurance and SMI: Supplemental Medical Insurance) and the blue line is Social Security (OASI: Old Age and Survivors Insurance and DI: Disability Insurance).

That looks much better than the same chart last year:The difference is due to the health care reform bill passed earlier this year (the Affordable Care Act, or ACA), as this year's report explains:
Much of the projected improvement in Medicare finances is due to a provision of the ACA that reduces payment updates for most Medicare goods and services other than physicians’ services and drugs by measured total economy multifactor productivity growth, which is projected to increase at a 1.1 percent annual rate on average. This provision is premised on the assumption that productivity growth in the health care sector can match that in the economy overall, rather than lag behind as has been the case in the past. This report notes that achieving this objective for long periods of time may prove difficult, and will probably require that payment and health care delivery systems be made more efficient than they are currently. To facilitate this outcome, the ACA establishes a broad program of research on innovative new delivery and payment models to improve the quality and cost-effectiveness of health care for Medicare — and, by extension, for the nation as a whole. The improvement in Medicare’s finances projected in this report highlights the importance of making every effort to make sure that ACA is successfully implemented. If health care efficiency cannot be substantially improved through productivity gains or other measures, then over time the statutory Medicare payment rates would become inadequate. In that situation, the payment update reductions might be suspended, in which case actual long-range costs would be larger than those projected under current law.
That's what President Obama and other reform advocates meant by "bending the curve." If it holds up over time, it represents a huge step towards improving the government's long-term financial picture - i.e., the health care reform bill was a tremendous act of "fiscal responsibility."

The other takeaway from the chart is that, in general, the fiscal situation of the main "entitlement" programs isn't nearly as dire as some would have you believe. Social Security looks to level off at roughly 6% of GDP, which is quite manageable, and now, thanks to the reform, Medicare may do the same.


JustOneGroup said...

Hmm. The chief actuary dissented from his own report, writing this in the Statement of Actuarial Opinion:

"...the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations".

He also offered an alternative forecast (apparently, no previous actuary has felt obliged to do that) with more realistic assumptions; health care leveled off at 10-11% of GDP, not the 6% figure he refudiated.

Bill C said...

Thanks for pointing that out. Indeed, the proof will be in the implementation. I think the excerpt in the post from the report nicely explains some of the caveats, which are not trivial.

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