RadioBDC Logo
| Listen Live
< Back to front page Text size +

The Changing Politics of Medicare & Medicaid Finance

Posted by John McDonough  February 23, 2013 03:14 PM

E-mail this article

Invalid E-mail address
Invalid E-mail address

Sending your article

The widely shared wisdom about Medicare and Medicaid is that the programs are in crisis because of rapid and uncontrollable spending increases. Many say the only solutions are to raise the Medicare eligibility age to 67 from 65, block grant and cut Medicaid payments to states, and undertake other draconian steps to reduce eligibility, benefits, and cost protections from the programs' 112+ million enrollees.

The conventional wisdom is wrong, and the evidence keeps getting stronger. See this chart below from a new report by the Center on Budget and Policy Priorities:


Remember that the Affordable Care Act was signed by President Obama in March 2010. That law deliberately triggered about $449 billion in Medicare saving and reductions between 2010 and 2019. In August, 2010 the Congressional Budget Office (CBO) put out Medicare spending projections for that 10-year period documenting the near half trillion in savings triggered by the ACA. Between August 2010 and February 2013, the CBO redid its estimates.  The Center for Budget and Policy Priorities now finds, based on the newer CBO analysis, that Medicare spending will, in fact, drop by an additional $511 billion more than estimated in the 2010 calculation.

Remember that the total net federal cost of the ACA between 2010 and 2019 was about $950 billion. The rest of the $500B price tag was paid primarily with tax increases on wealthier Americans and on drug, device and insurance companies. Turns out, surprisingly, that the Medicare deceleration alone would have been sufficient to finance the total ten-year cost of the ACA.

And here's a bit from a CBO blog entry from this week which adds more weight and evidence:

"In its most recent baseline projections, CBO reduced its estimates of spending for the Medicare and Medicaid programs compared with its estimates in the August 2012 baseline. For the 2013-2022 period, projected spending for those programs is now $382 billion (or 3½ percent) below the agency's estimates in August 2012."

That's $239 billion lower projected spending for Medicaid and $143 billion lower spending for Medicare between 2013-22 than estimated only six months ago in August 2012.

This follows a familiar trend others have noticed. When it comes to major federal health reforms (in 1983, 1997, and 2003), the CBO has consistently overestimated costs and underestimated savings and revenues. That conservative approach creates good news and opportunities down the road, and it's time to start focusing on them.

Back in 1997, the CBO and Congress substantially underestimated the savings from that year's Balanced Budget Act which implemented much more strenuous changes in Medicare than even the ACA. In both 1999 and 2000, Congress actually passed follow up laws to undo some of the damage, especially to hospital budgets.

These current unanticipated savings offer three important opportunities:

  1. To fix the flawed Medicare physician payment scheme called the Sustainable Growth Rate (SGR);
  2. To undo some of the damage that will be done to safety net hospitals via the ACA because of reductions in disproportionate share hospital payments; and
  3. To begin fixing the inadequate subsidies for  lower income Americans through the Exchanges/Marketplaces beginning next January.

As the ideological heat wave over the ACA begins to diminish, it's time to begin focusing on priority areas for fixing. The window of opportunity is starting to open.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

E-mail this article

Invalid E-mail address
Invalid E-mail address

Sending your article


About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »


Health search

Find news and information on:

More community voices

[an error occurred while processing this directive]

Child in Mind

Corner Kicks

Dirty Old Boston

Mortal Matters

On Deck

TEDx Beacon Street