Monthly Archives: April 2015

Is Medicare Spending Increasing?

The Department of Health and Human Services released a report this month highlighting the slowdown in Medicare spending growth in recent years. The administration says that Obamacare has led to slower growth in overall health spending, which in turn has made Medicare more sustainable. Another government document suggests that Medicare spending may be accelerating—but even if it isn’t, demographic trends will create pressure on the program in the coming years.

The HHS report compared Medicare growth rates from 2000 to 2008 with rates from 2009 to 2013, and found that $316 billion was saved over the latter period. The calculation includes Medicare savings for the year before Obamacare was enacted, which indicates that the law cannot be fully responsible for the slowdown. Some reports have suggested that much of the slower growth in health spending has stemmed from lingering economic weakness, though studies and experts differ on this point.

But in the week before this report was published, HHS undercut its message by acknowledging that Medicare spending has accelerated in recent months. The Centers for Medicare and Medicaid Services initially proposed a payment decrease for Medicare Advantage plans in 2016, but its final call letter proposed a payment increase, which it attributed to recent spikes in Medicare fee-for-service (FFS) spending:

The 2.5 percentage point increase from the Advance Notice to the Final Notice comprises 1.9 percentage points of additional FFS spending through 2015, an underlying additional FFS trend rate of 0.6 percent for 2016, and 0.1 percent for the assumption that Congress will enact the pending [“doc fix”] legislation. . . . Initial information from Medicare actuaries suggests that contributing factors behind the change from the preliminary growth rate include higher than expected spending on impatient hospitalizations and some intermediary services such as therapy, rural health clinics and federally qualified health centers.

In other words, Medicare Advantage plans did not cut payments for the upcoming year because Medicare’s actuaries have observed an uptick in spending for traditional Medicare. It’s possible, then, that the trend of slower spending growth highlighted in the HHS report may have ended.

Even if the growth in Medicare spending stops, demographic trends in the coming decades will still force a re-examination of the program. The onslaught of retiring baby boomers—an average of 10,000 per day for two decades—will define our fiscal future for the next generation. Whether or not growth in Medicare spending remains slow for years to come—and some trends suggest that it won’t—federal policy makers still have good reason to prioritize right-sizing of entitlement programs.

This post was originally published at the Wall Street Journal’s Think Tank blog.

“Doc Fix” Bill Makes Things Worse

Proponents of the “doc fix” legislation the House passed before Congress’s Easter recess have argued that it would permanently solve the perennial issue of physician reimbursements in Medicare. But an analysis by Medicare’s nonpartisan actuary all but cautions: “Not so fast, my friends!

The estimate of the legislation’s long-term impacts by Medicare’s chief actuary is sober reading. The legislation provides for a bonus pool that physicians can qualify for over the next 10 years but applies only in 2019 to 2024. The budgetary “out-years” provide for minimal increases in reimbursement rates. Beginning in 2026, physicians would receive a 0.75 percent annual increase if they participate in some alternative payment models or a 0.25 percent annual increase if they do not. Both are significantly lower than the normal rate of inflation.

Such paltry increases could have daunting effects over time. “We anticipate that payment rates under [the House-passed bill] would be lower than scheduled under the current SGR [sustainable growth rate formula] by 2048 and would continue to worsen thereafter,” the report said. By the end of the 75-year projection, physician reimbursements under the House-passed bill would be 30% lower than under the SGR. Critics have called the current system unsustainable, but over time the House bill’s “fix” would result in something worse.

The actuary said that the inadequacies of the House-proposed payment increases “in years when levels of inflation are higher.” Under the House-passed bill, physicians would receive a 2.3% increase in reimbursements over a three-year period. According to the Bureau of Labor Statistics, the inflation rate was 11.3% in 1979, 13.5% in 1980, and 10.3% in 1981. If high inflation returned, doctors could effectively receive a paycut after inflation.

While physician groups are clamoring to avoid the 21% cut that would take effect this month if some sort of “doc fix” is not enacted, the House’s “solution” could result in larger real-term cuts in future years. Medicare’s chief actuary explains the results of these reimbursement changes over time:

“While [the House-passed bill] addresses the near-term concerns of the SGR system, the issues of inadequate physician payment rates are ultimately greater. . . . [T]here would be reason to expect that access to physicians’ services for Medicare beneficiaries would be severely compromised, particularly considering that physicians are less dependent on Medicare revenue than are other providers, such as hospitals and skilled nursing facilities.”

In sum, “we expect that access to, and quality of, physicians’ services would deteriorate over time for beneficiaries.”

The House “doc fix” legislation involved increasing the deficit by $141 billion, purportedly to solve the flaws in Medicare’s physician reimbursement system. But Medicare’s actuary thinks this legislation will make the long-term problem worse. When will Congress figure out that if you’re in a fiscal hole, it’s best to stop digging?

This post was originally published at the Wall Street Journal’s Think Tank blog.

Has Obamacare Enrollment Peaked?

Has the effort peaked to sign up uninsured Americans for coverage? The announcement that the nonprofit organization Enroll America is laying off staff and redirecting its focus in the face of funding cuts comes amid inconsistent sign-ups during the second Affordable Care Act open-enrollment period and concerns about affordability.

A recent New York Times analysis compared Kaiser Family Foundation estimates of potential enrollees with sign-up data from the Department of Health and Human Services. While some states that signed up few people in 2014 recovered during the 2015 open enrollment, other states lagged: “California, the state with the most enrollments in 2014, increased them by only one percentage point this year, despite a big investment in outreach. New York improved by only two percentage points. Washington’s rates are unchanged.”

Most states could not post consistent gains in both open-enrollment periods. An official from Avalere Health, a consulting firm, told the Times that she was “starting to wonder if we’ve overestimated the whole thing.”

A recent analysis from Avalere Health demonstrates why the enrollment push may have peaked. The percentage of eligible Americans signing up drops off significantly as income rises and federal subsidies phase out, suggesting that absent subsidies Americans find the exchange insurance products unaffordable or of little value. And if the carrot of federal subsidies has not resulted in expected enrollment, the stick—the mandate to purchase insurance—seems even less effective: The special open-enrollment period to accompany this year’s tax-filing season has resulted in 36,000 sign-ups in the 37 states using HealthCare.gov. But 4 million to 6 million people are expected to pay the mandate tax.

The Congressional Budget Office (CBO) estimates that ACA enrollment will average 11 million individuals, with 8 million receiving subsidies. So far, enrollees reporting incomes above the threshold for subsidies are only 2% of uninsured individuals who have signed up, making it hard to see how the administration can reach CBO’s estimate of 6 million unsubsidized exchange enrollees in 2016. The fact that California, New York, and Washington state achieved only marginal enrollment improvements from 2014 to 2015 does not bode well for achieving CBO’s target of 15 million subsidized enrollees next year—a more than 50% increase from the 9.9 million individuals who qualified for subsidies in 2015.

With outreach efforts scaling back, and many Americans uninterested in ACA coverage absent hefty federal inducements, CBO’s estimate of 21 million enrollees next year seems unlikely to be met. If this year’s results from California and New York are any indication, a good question may be whether 2016 enrollment will grow at all.

This post was originally published at the Wall Street Journal’s Think Tank blog.