More on the 2010 Medicare Trustees Report

or “Pay no attention to the little man behind the curtain”

Paul Krugman is delighted with the most reent Medicare Trustees Report released yesterday:

…the Medicare actuaries believe that the cost-saving provisions in the Obama health reform will make a huge difference to the long-run budget outlook. Yes, it’s just a projection, and debatable like all projections. And it’s still not enough. But anyone who both claims to be worried about the long-run deficit and was opposed to health reform has some explaining to do. All the facts we have suggest that health reform was the biggest move toward fiscal responsibility in a long, long time.

Unfortunately, although that’s what the summary that I cited yesterday says, that’s not what the actuaries have said.

Here’s the a link to the full Medicare status report rather than just the summary and here’s a selection from the actuary’s statement:

…the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable).

The actuaries’ alternative scenario is here. It’s somewhat more interesting than the original report for several reasons includings its insights into the assumptions that were made in the published report.

So, for example, here:

Based on a recommendation by the 2000 Medicare Technical Review Panel, the baseline increase in average expenditures per beneficiary for the 25th through 75th years of the projection is initially assumed to equal the growth in per capita GDP plus 1 percentage point, prior to demographic effects. These growth rates are then refined to provide a smoother and more realistic transition from current Medicare cost growth rates, which have been significantly above the level of GDP growth, to the ultimate assumed level of GDP plus zero percent for the indefinite future (2085 and later).

Contrast that with the actuaries’ more realistic analysis:

Physician payment rate updates are assumed to equal the increase in the Medicare Economic Index (MEI), which is estimated to be roughly 2 percent per year.22 This scenario effectively assumes that the SGR system would no longer be used to determine physician payments. Table 3 shows projected short-range Part B expenditures and growth rates under current law compared to the alternative scenario. Expenditures under the alternative projections would be just slightly higher than under current law in 2010, since only December expenditures would be affected, but would be 21.8 percent higher by 2019.

Here’s the expected growth of Medicare spending from the actuaries’ alternative scenario:

The solid line labelled “2010 TR” is what Dr. Krugman is rhapsodizing about. The dashed line labelled “2010 TR ALT”, quite similar to the trend reported in the 2009 Trustees Report, is the actuaries’ actual projection.

Here’s the Chief Actuary’s concluding remarks:

The immediate physician fee reductions required under current law are clearly unworkable and are almost certain to be overridden by Congress. The productivity adjustments will affect other Medicare price levels much more gradually, but there is a strong likelihood that, without very substantial and transformational changes in health care practices, payment rates would become inadequate in the long range. As a result, the projections shown in the 2010 Trustees Report for current law should not be interpreted as our best expectation of actual Medicare financial operations in the future but rather as illustrations of the very favorable impact of permanently slower growth in health care costs, if such slower growth can be achieved. The illustrative alternative projections presented here help to quantify and underscore the likely understatement of the current-law projections shown in the 2010 Trustees Report.
While the significant improvements in Medicare‟s financial outlook under the Affordable Care Act are welcome and encouraging, expectations must be tempered by awareness of the difficult challenges that lie ahead in improving the quality of care and making health care far more cost efficient. The sizable differences in projected Medicare cost levels between current law and the illustrative alternative scenario highlight the critical importance of finding ways to bring Medicare costs—and health care costs in the U.S. generally—more in line with society‟s ability to afford them.

The 2010 Medicare Trustees Report, like the CBO report on the effects of the PPACA before it, is a political document, its authors compelled by law to use assumptions they do not believe to be true. More realistic assumptions should assume slower growth in revenue and faster growth in costs.

Or, said another way, we’re in serious need of healthcare reform legislation.