The Coming Health Care Debacle

Source: Decline of the Empire

Health care has been in the news because the Supreme Court is considering the constitutionality of what is now universally called Obamacare. The current debate will fade away until the court makes their decision in June, but the daunting future costs curve of government health care spending is still with us.

When I decide to write about health care costs, I always feel as though I’ve jumped in the middle of a political brawl. So I’ll quote from Slower Growth in Medicare Spending — Is This the New Normal? This article appeared in the New England Journal of Medicine on March 22.

For many years, policymakers have appropriately singled out federal spending on health care — especially Medicare — as the most serious long-term threat to the nation’s fiscal health. Over the past four decades, the average growth in Medicare spending per enrollee has exceeded the growth in per capita gross domestic product by 2.6 percentage points per year. This trend is unsustainable: if it continued, Medicare would consume all federal revenues by 2060.

And let me quote from Andrew Leonard, who cited the New England Journal article in The Obamacare Tragedy.

If there is one point on which budget wonks on both the left and right agree, it is that the long-term growth in Medicare costs poses by far the greatest threat to the finances of the U.S. government and the health of the American economy.

Mish recently published this graph from Paul Ryan’s Path To Prosperity. The Congressional Budget Office (CBO) is the source of this data.

These quotes should put to rest the notion that future government health care spending is a political issue. No one knows the true cost of Obamacare over the next decade if the bill remains intact and is not repealed by a future Congress and President. Obamacare is said to slow the growth rate of Medicare and Medicaid spending. Indeed, that’s what the New England Journal article is about.

But there are indications that Medicare spending growth has slowed. One highly visible gauge of Medicare spending trends is the standard monthly Part B premium, which is set by the Medicare actuary to cover one quarter of total Part B spending. In August 2011, the actuary projected that the Part B premium for 2012 would be $106.60, but the actual premium was set in November at only $99.90. A much broader indicator of a slowing trend is the fact that growth in Medicare outlays per enrollee in 2010 and 2011 was roughly in line with growth in the economy

See this graph  

[My note: I can't duplicate that graph here, so click on the link provided to see it.]

Excess Medicare Spending Growth.). And in January 2012, the Congressional Budget Office (CBO) made a $69 billion downward revision to its 10-year Medicare spending projection — a technical correction that reflects emerging data showing surprisingly slow growth in outlays. Similar slowing trends have led to positive earnings surprises for publicly traded insurers.

Can we dismiss the recent slower growth in Medicare spending as a fluke? There are temporary factors in play, most obviously the recent economic downturn. Between 2007 and 2010, the nonelderly population of the United States had massive losses in income, assets, and coverage through employer-sponsored insurance, as well as reduced access to consumer credit; it is reasonable to conclude that the demand for medical services among the nonelderly contracted as a result…

Both Andrew Leonard and the New England Journal authors argue that the slowing in the growth rate of Medicare expenditures is due (in part) to health care providers anticipating that they won’t be able to raise prices willy-nilly in the future as they have in the past after Obamacare is implemented. And that may be so.

My response to this argument can be summed up as follows—

Blah, blah blah.

And furthermore—

Blah blah. Blah, blah, blah blah, blah!

There is no question that Obamacare spending is net positive over time, which means that expenditures will increase over time, even if the growth rate is not as steep as it has been. Taking another look at that first chart, these arguments about this or that aspect of the bill are akin to rearranging the deck chairs on the Titanic. And here’s another chart.

Projected federal spending as a percentage of GDP under one very optimistic! fiscal scenario from the CBO. Cited in my post It’s Health Care Weekend!

I hope you are aware that deficits arising from future health care expenditures as projected by the CBO are based on fantasy GDP growth rates.

Do you remember when Obamacare was passed? And the Democrats walked down the street arm-in-arm proclaiming victory? With that big smile on Nancy Pelosi’s face? Let me remind you.

 From my post A Rounding Error In The Right Direction

So when we think about future health care expenditures, and the deficits arising from them, I still think the best strategy is to bend over as far as you can, put your head between knees, and kiss your ass goodbye.

Later.

Read more at Decline of the Empire