Digital Health

What’s Behind the Medicare Slowdown?

Medicare Chart

Since Medicare coverage first took effect almost six decades ago, the program’s runaway spending has played a leading role in the story of the federal budget. Now, the end of that growth is stealing the spotlight.

An excellent piece in The New York Times highlighted how Medicare’s unsustainable climb reached a turning point in 2011, and for reasons that aren’t exactly clear.

In 2011, Medicare spending per beneficiary (MSPB) reached $13,159, nearly double the level it was at near the turn of the century.

  • If historical growth had sustained beyond that point, we’d currently be sitting at roughly $22,006 MSPB. Luckily, that’s not what happened.
  • Spending leveled out, and we now find ourselves at $12,459 MSPB, a nearly $4 trillion gap compared to previous projections… yet the underlying cause remains a mystery.

The trillion dollar question: what changed? The authors call out obvious shifts in Medicare policy, namely the Affordable Care Act in 2010, and its reduced Medicare payments to hospitals and payors with private Medicare Advantage plans.

  • While ACA was certainly a contributor, most of the reductions are attributed to a category that the budget office calls “technical adjustment,” which describe changes to a wide base of topics such as the expansion of cholesterol and blood pressure medicines.

The NY Times concludes that the true reason for the change is a hard problem that remains unsolved, but the smart folks on social media were quick to pick up where they left off, floating possibilities such as:

  • As MA lives increased, the types of MA plans also improved due to the phasing out of inefficient plan designs
  • Age of death increases stopped around this time, so US citizens aren’t living to older ages with increasingly complicated health issues 
  • The rise of ACOs started in 2012, although we just covered why that factor probably doesn’t account for a huge share of cost reductions

The Takeaway

Savings attribution has always been a fundamental challenge for the healthcare industry, underpinning many of the issues with value-based care and other alternative models. Now that we’ve found ourselves at an inflection point where Medicare spending is slowing but still outpacing the federal budget, the solution to that savings attribution problem will also be what lets us identify the levers that will keep the trend heading in the right direction.

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-- The Digital Health Wire team

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