September 23, 2014

Alternative Scenarios Raise Caution About Medicare Projections

  • The American health care system is a patchwork of public and private programs that serve citizens in different ways, depending on their age, military...

The Medicare actuaries have released updated alternative scenarios for the program, providing data and analysis that underscore the possibility that its long-term costs could well turn out to be higher than last month’s annual report from the Medicare trustees indicated.

The trustees themselves acknowledged that “actual future costs are highly uncertain,” and Concord Coalition Policy Director Joshua Gordon sees “numerous reasons” to believe that the official figures released in April “do not give the full picture.”

In a blog posting today, Gordon explains some of the uncertainties that are highlighted by the actuaries’ scenarios.

Under the official projections, for example, Medicare growth primarily reflects the aging of the population and, as the result of the 2010 Affordable Care Act (ACA), only gradual increases in payments for health care due. But there are many uncertainties about the future impact of the law, and the actuaries’ alternative scenarios assume payments will not slow as quickly as the ACA envisioned.

The actuaries also take into account the cost of the “doc fixes” that Congress passes each year to avoid steep cuts in Medicare Part B payments to physicians. “The currently used formula, called the Sustainable Growth Rate (SGR), calls for ever-growing cuts that are so large they would be nearly impossible to implement,” Gordon writes.

Another concern: Restrictions on the Independent Payment Advisory Board that was created by the ACA could severely limit the panel’s ability to restrain Medicare costs.

So under certain assumptions, the actuaries say, by 2030 Medicare costs could equal 5.8 percent of the economy (GDP), compared to the estimate of less than 5.3 percent in the trustees’ report last month. The actuaries project a figure of nearly 10 percent of GDP in 2080, compared to just under 6.7 percent in the trustees’ report.

Gordon agrees with the actuaries’ warning that expectations of long-term cost savings in Medicare should, in their words, 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.”