Do Medicare and Medicaid Spending Trends Warrant a Major Restructuring?

While Medicare and Medicaid spending has been under attack in an effort to rein in federal spending, analysis over the last decade indicates that substantial restructuring of the programs may not be warranted, according to a "perspective" by John Holahan, PhD, and Stacey McMorrow, PhD, published in The New England Journal of Medicine on Aug. 1.

The sizeable federal deficit coupled with health care spending growth in the U.S. trending higher than the growth of the economy each year has resulted in pressure to align the spending growth rate with the gross domestic product (GDP) growth rate. A common element included in federal deficit reduction proposals has been slashing Medicare and Medicaid spending in order to achieve this goal. While some proposals call for overhauls of the "fundamentally flawed" programs, others suggest that only moderate adaptations are needed. "Rather than pursuing major restructuring of either program…we should continue adopting available strategies to contain costs within the programs' current structure, especially since many of those implemented in the past decade seem to be working, and many on the horizon appear promising," the authors write.

Medicare and Medicaid enrollment rates have climbed over the last decade leading to increased spending; however, the rate of spending growth per enrollee slowed significantly in both programs. While the enrollment rate is projected to continue on an upward swing given the influx of baby boomers and the economic recession, the per-enrollee growth rate is likely to trend close to the expected GDP growth rate per capita. "These data do not support the need for major restructuring of either program," the authors point out.
There remains a lack of clarity on the key driver of this slowed growth per enrollee. While two recessions have had a substantial impact on enrollment and spending, fewer blockbuster drugs, tiered formularies, increased generics, hospital cost reduction efforts and increased clinical integration, are also cited among the contributing factors. The authors note that "despite the incomplete understanding of the slowdown's causes, the Centers for Medicare and Medicaid Services projects that health care expenditures will continue to grow relatively slowly over the next decade – about one percentage point faster than the GDP."

This analysis underscores that program spending is not out of control and future cost-containing initiatives, such as provisions included in the Affordable Care Act, will play a key role in aligning the growth of health care spending with GDP growth. However, "none of this means that we cannot do better in controlling health care costs," they stress.

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