About that Medicare cost slowdown

by on January 14, 2014 at 4:34 pm in Economics, Medicine | Permalink

Medicare today is in worse financial shape than was projected before the cost slowdown began. The recession had a more severe impact in depressing Medicare revenues than it had a helpful effect on Medicare cost growth.

That is from Chuck Blahous.  It is tricky as to whether we are associating the recession with a one-time loss of output, or with an ongoing slowdown in the rate of economic growth (and which caused which?).  Still, on the fiscal front, for the long-term projections, I would say the net bad news has been exceeding the net good news, even though the good news is very welcome indeed.

1 JWatts January 14, 2014 at 4:54 pm

“Medicare today is in worse financial shape than was projected before the cost slowdown began.”

Well, that’s an easy fix. Let’s take $600 billion from Medicare over the next 10 years and use it to fund a Medicaid expansion. Then the cost curve will bend downward and we’ll have affordable healthcare for all.

No seriously, it will work.

Just give it some more time.

I promise.

2 Z January 14, 2014 at 6:31 pm

Or, expand the program to include all Americans and illegal aliens. That is, after all, single payer.Medicare for everyone! Just because it loses money now, once it is named “single payer” it will magically solve all of life’s problems.

3 dearieme January 14, 2014 at 5:58 pm

It hadn’t occurred to me that a government scheme like Medicare could be said to have revenues. Can anyone explain to this foreigner? Do you have hypothecated taxes in the US?

4 Ape Man January 14, 2014 at 7:35 pm


I am told on my pay stub how much I paid the feds, how much I paid SS and how much I paid Medicare. And that does not count the money I pay the state. And all those taxes are just the income taxes.

5 dearieme January 15, 2014 at 8:20 am

Does that mean that people who haven’t paid Medicare, by virtue for instance of having no income, don’t get to use it? Ditto SS?

6 Dan Weber January 15, 2014 at 9:34 am

You earn Social Security credits based on how much you put in, and get paid out according to a formula based on those credits. You need a minimum number to get paid anything (~5 years, IIRC) and there is a lifetime cap on how many credits you can earn.

The rules are changeable by Congress at will, so I considered putting earn in scare-quotes above, but didn’t want to trigger a flame war.

You need some level of those same credits (by you or your spouse) to qualify for Medicare, but it’s pretty easy to hit. I think it’s ~10 years of working.

7 JWatts January 15, 2014 at 10:59 am

To qualify for Social Security you must pay in for 40 quarters over your life time or have a spouse who has. If you don’t qualify for Social Security, then you probably qualify for Supplemental Security Income, assuming you are poor.

Medicare is made up of different components. You don’t need a work history to qualify for parts B & D. For part A, if you don’t have a work history of at least 40 quarters (or spouse work history) then you must pay a premium of $450 a month.

Medicare Part A (hospital insurance)
Medicare Part B (which covers doctors’ services, misc.)
Medicare Part C (Medicare Advantage, ie supplemental)
Part D (prescription drug coverage)

8 Willitts January 14, 2014 at 9:48 pm

In addition to the taxes identified by Ape Man, since Medicare has an implicit government backstop, every dollar of tax revenue can and will be used by it.

Not mentioned is that Medicare pays only after other insurance is billed, so in effect everyone who has post-retirement health insurance subsidizes Medicare. How silly of them.

9 AlanInAZ January 16, 2014 at 10:56 am

Most post retirement insurance works the other way. Medicare pays first and the retirement plan kicks in later (maybe). This is from a retiree with such plan from a major multi-natiional..

10 MusanteW January 14, 2014 at 5:59 pm

So the Medicare Trustees aren’t very good at issuing accurate Medicare projections. Why pay any attention to their pronouncements?
Think their Medicare management skills are any better?

[The Medicare Board of Trustees has six members; all are political appointees. Three are Cabinet members (Secretaries of Treasury, Labor, and HHS), plus Commissioner of Social Security. Last two members are supposed “public representatives”: Charles P Blahous III and Robert D Reischauer.]

11 Bill January 14, 2014 at 6:29 pm

What he basically says is : ignore ACA effects because it has not been fully implemented; ignore projections because they are uncertain; and believe my projections. Read the summary of his paper.

12 Anon January 14, 2014 at 6:05 pm
13 Jan January 15, 2014 at 6:40 am

The problem is that Medicare pays for all kinds of crap that isn’t proven to work, or works the same as another therapy but is much more expensive.

14 Dan Weber January 15, 2014 at 9:35 am

+1. If either party proposes effectiveness research, the other party demonizes them for attacking health care.

15 JWatts January 15, 2014 at 11:02 am

-1, I’m don’t think that’s the real problem or at least I wouldn’t phrase it that way.

The real problem is that Medicare pays for a tremendous amount of expensive care the last 18 months of a patients life.

16 W.E. Heasley January 14, 2014 at 6:33 pm

Until which time robust competition occurs in the supply of health-care, prices will continue to rise. In a more robust economy the supply-side problem becomes more acute. In the not-so-great-expansion, following the great recession, the supply-side problem merely simmers.

The failure of robust supply-side competition to emerge is due to the usual suspect: government failure. More succinctly, the failure of politicos through the mechanism of government.


17 XVO January 15, 2014 at 9:57 am

Everyone should read this. Especially people who say the medical industry was a free market and that’s why it didn’t work.

18 JWatts January 15, 2014 at 3:07 pm

“Especially people who say the medical industry was a free market and that’s why it didn’t work.”

I find it hard to believe that the people who say that are actually interested in facts. It’s a claim you hear frequently, but which has little basis in fact. Ergo, if you are making it, you aren’t the type of person to validate your information.

19 tt January 14, 2014 at 6:58 pm

you guys are such gigglers. tee-hee , hey look at this,
a government program i am paid to discredit
has an article that discredits it (and it happens to be written by someone
paid to discredit medicare)

20 Cliff January 14, 2014 at 7:26 pm

Yes, Tyler forgot the golden rule of never linking to any study that he agrees with

21 prior_approval January 15, 2014 at 12:25 am

Actually, Prof. Cowen has never forgotten the golden rule that links are a part of what makes spiders work.

I’d provide more information, but in the past, such details have had a very short life.

Let us just say that one of the things better than a link is owning a domain name that is in total agreement with the search term being emphasized, filled with content generated by the search term.

22 JWatts January 14, 2014 at 9:25 pm

“and it happens to be written by someone paid to discredit medicare”

The author is one of the 6 trustees for Medicare.

23 Bill January 14, 2014 at 9:28 pm

The author is a Bush political appointee who was on the commission to privatize Medicare.

24 Bill January 14, 2014 at 9:29 pm

Sorry, privatize SSecurity.

25 Willitts January 14, 2014 at 9:43 pm

And this has the same intergenerational funding problems as SS, so he would understand the problem.

26 Bill January 14, 2014 at 10:10 pm

Yeah, with his Ph.D in computational chemistry he is well qualified.

Goes to show you what a degree in chemistry will get you.

27 Mark Thorson January 14, 2014 at 10:48 pm

Margaret Thatcher had a bachelor’s degree in Chemistry.

28 Willitts January 15, 2014 at 1:52 am

Gee, I have an idea. Why don’t we get a Community Organizer to run the country?

29 Marian Kechlibar January 15, 2014 at 4:12 am

At the very least it shows that he can compute something complicated.

With lots of political appointees, I am not sure whether they even know what compound interest is.

30 TMC January 15, 2014 at 9:58 am

“Goes to show you what a degree in chemistry will get you.”

People in the hard sciences are not socialists?
I’m sure your comment made some sense in your head, but said out loud….

31 JWatts January 15, 2014 at 11:05 am

“The author is a Bush political appointee who was on the commission to privatize Medicare.”

It appears from that statement that Bill genuinely believes that half the country shouldn’t get a say in the decision process, because they don’t agree with him.

32 Willitts January 14, 2014 at 9:41 pm

This is quite typical of high volatility, narrow base revenue sources and nominal cost structures that are sticky downward. It leads to ever-increasing deficits and spiraling debt.

33 TallDave January 14, 2014 at 10:49 pm

I used to worry about this problem a lot more before I realized we could just cut spending. A lot of people haven’t figured this out yet, or are not equipped to deal with the possibility.

The votes will of course be contentious. Fortunately 007 has the solution:


Today Scotland, tomorrow The Republic of Greater Texas (national motto: come for the oil jobs, stay for the credit rating!)

34 Boonton January 14, 2014 at 11:35 pm

Curiously the same could be said about private health insurance. Private insurance simply takes up a larger and larger portion of the paycheck. Medicare consumes a fixed tax which can only be raised among much political chaos. So in an environment of rising medical costs relative to all else, it’s not shocking that projections of Medicare’s finances look sour. Yet, oddly it’s also probably better than everything else in the health system.

35 Willitts January 15, 2014 at 1:54 am

Private health insurance charges premiums based on risk profiles. You see, private insurance actually cares about remaining liquid and solvent. Stockholders are sort of sticklers about those things.

36 Rahul January 15, 2014 at 3:15 am

Everything you right is true. But I don’t see how it addresses what Boonton wrote.

37 Willitts January 15, 2014 at 11:32 am

I don’t see it either, Rahul. 🙂

38 Dan Weber January 15, 2014 at 9:41 am

Medicare consumes a fixed tax which can only be raised among much political chaos.

Medicare is a completely open-ended program. If $2 trillion in legitimate doctor bills come in next year and only $1 trillion from Medicare’s portion of FICA, that $2 trillion is still being paid out.

I would love to have government health care to be limited by statute to a specific tax and not allowed to go over that, so that the government has to figure out the best bang for the buck, and then decline to cover stuff that falls below its threshold. (I would prefer it to cover all people, not just the elderly and the poor who can sign up, and I would prefer it to be a consumption tax, not a wage tax, so that retirees cannot vote for more health care that they think someone else pays for, but those are minor details compared to getting some kind of actual cap on spending.)

39 Benny Lava January 15, 2014 at 8:22 am

Obviously this is a political issue. Medicare recipients are the richest demographic in America. They are a growing demographic, soon to be the largest. They vote more frequently than any other demographic. So cutting spending on their program is well nigh impossible.

40 We live in interesting times January 15, 2014 at 10:26 am

I would like to think my demographic could be reasonable. I think there’s a case to be made to us that with Medicare going broke, Medicare really shouldn’t be paying for elective eye tucks and the like. Couch it in “It’s for the children” and you might be surprised. It worked in the 90s.

41 JWatts January 15, 2014 at 11:13 am

I don’t think it’s that simple. While Medicare shouldn’t be paying for elective surgery, that’s not really a fundamental problem. Medicare’s fundamental problem is paying for a huge amount of health care for someone who’s about to die anyway.

That’s fundamentally a hard, intractable problem. Nobody is easily going to decide to let Grandpa die right now versus spending another $20K of someone else’s money to keep him alive another month. It wouldn’t be an issue if we had started rationing that care 50 years ago, but who wants to be the first generation to be told that no, we can’t afford to keep you alive any longer?

42 msgkings January 15, 2014 at 1:35 pm

Yep, this. +1. That’s the big intractable problem. That and doctors’ incomes (much higher than the rest of the world, not just absolutely but proportionally to others in their respective countries).

It’s easy to point at those 2 things and say ‘fix that and we’re good’ but that’s because most of us aren’t doctors being told to make less, or very old people (or their family) who are using a lot of Medicare $ over their last 3 months of life.

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