This week on Facing the Future, host Bob Bixby spoke with Josh Gordon, vice president of health care policy at Arnold Ventures, about the pressing issues surrounding health care spending in the United States and potential reform options. Framing the conversation was data from two recent reports: the Medicare Trustees Report and the National Health Expenditure Report by the Centers for Medicare and Medicaid Services (CMS).
Gordon highlighted a significant shift in health care expenditure trends. From 2010 to 2024, the growth in national health expenditures (NHE) grew more slowly than projected. However, Gordon noted a concerning reversal in this trend in the last two years, with health care spending picking up again at rates not seen in the prior decade and a half. He explained, “Healthcare costs will continue to grow faster than the economy, taking up a larger share of economic resources and growing from about 18% of GDP to about 20% of GDP by 2034.” This forecast signals a return to a period of rapid spending growth that had been somewhat subdued in recent years.
The discussion also touched on the factors driving this renewed growth. Gordon pointed to a combination of increased utilization of health care services and rising prices, with a particular emphasis on prescription drugs. He mentioned the impact of new medications such as anti-obesity GLP-1 drugs and physician-administered drugs covered under Medicare Part B, noting, “The growth in prescription drug spending has been pretty noticeable over the last few years… That spending has been growing because of high-cost drugs and the price of those drugs growing pretty rapidly.” While some legislative measures like the Inflation Reduction Act have lowered prices on certain drugs, they have also made Medicare Part D benefits more generous, which in turn increased costs. Gordon acknowledged the uncertainty around the long-term effects of new treatments, especially anti-obesity drugs, saying, “We don’t quite know that [long-term savings from these drugs], and the NHE projections are just for the next decade where you’re not really going to see any of those savings pay off.”
Turning to the Medicare Trustees Report, Gordon explained the differences between Medicare’s Hospital Insurance (HI) fund and the Supplementary Medical Insurance (SMI) fund, which covers Parts B and D. While HI is mostly funded by payroll taxes and faces a solvency deadline that often captures public attention, SMI is funded largely by general revenue subsidies that cover about 75% of its costs. Premiums paid by beneficiaries cover the remaining 25%. He noted, “That [SMI] trust fund won’t ever become insolvent because it has an open spigot to taxpayer dollars. But the bad thing is that unlike in Part A, there’s no action forcing event to get Congress to take this seriously.”
Looking toward the future, Gordon painted a stark picture of Medicare’s growth. By 2050, Medicare is projected to grow by around 3% of GDP, a scale comparable to the entire current defense budget. He remarked, “We’re adding an entire new Defense Department onto the federal budget just over the next 25 years in just increased healthcare spending. So we have to do something about it, whether there’s an action-forcing event or not.”
Gordon identified reforming Medicare Advantage [Part C] as one of the most promising avenues for reducing costs. Medicare Advantage is a program where private insurance plans receive a fixed payment to cover beneficiaries’ health care needs, incentivizing them to manage costs effectively. However, Gordon explained that these plans are currently overpaid by over a trillion dollars projected over the next decade. He said, “Reducing these overpayments… is really the number one solution we should be looking for to start getting the growth of our healthcare costs, at least our federal government healthcare costs, under control.”
This overpayment issue is partly due to the way insurance companies code patients’ illnesses to receive higher payments, a practice known as “upcoding.” Gordon described this system, saying, “The way we determine how sick a patient is when that payment is set is based on how many diagnoses they’re coded with by the insurance company. And so the incentive for the insurance companies is to code as many diagnoses as possible.”
Encouragingly, bipartisan efforts are underway to address this problem. Both the Biden and Trump administrations have taken regulatory steps to limit upcoding, and a bipartisan bill called the No Upcode Act is gaining momentum in Congress. Gordon expressed hope that this legislation would help curb excessive Medicare Advantage payments and reduce overall costs in the program.
Beyond Medicare, Gordon stressed the importance of aligning health care costs with patient affordability. Despite the slowdown in overall health care spending growth over the past decade and a half, out-of-pocket costs, deductibles, and premiums have all increased significantly, fueling public concern about affordability. He pointed out, “Patients are upset about affordability, it’s important to lower costs in ways that patients can feel and taxpayers can benefit.” This challenge requires tackling costs across multiple sectors, including hospitals, physicians, insurance companies, and pharmaceutical firms.
Gordon’s insights underscored the complexity of health care spending in the U.S., the urgent need for reform, and the political will required to implement effective solutions. His analysis highlighted that while the challenges are significant, targeted changes—especially in Medicare Advantage—offer a pathway to controlling costs and improving affordability for both taxpayers and beneficiaries.
