Ten Miles Square


August 17, 2011 12:19 PM Psssst. Obamacare is Working

By Rick Ungar

Recent data published by both the Standard & Poor’s Healthcare Economic Composite Index and the Congressional Budget Office reveal some unusually good news on the Medicare spending front.

The rapid growth in annual government spending on Medicare is slowing down - and is doing so in rather dramatic fashion.

While these tidings have many of my progressive pals popping the champagne corks in the hope that this spending slowdown may yet save us from further cuts to the Medicare program, I’m afraid I feel the need to drizzle a bit on their parade - if only just little.

Here’s the data-

Over the year ending May 2011, Medicare claim costs rose at an annual rate of 2.64%, as measured by the S&P Healthcare Economic Medicare Index. That number is down 4.36 percentage points since May 2010, and down 5.53 percentage points since its November 2009 high. This represents the lowest annual growth rate in the six years S&P has been tracking the health care information.

This is a trend you have to got to love - if, in fact, it turns out to be an actual trend rather than a brief blip in an upward trajectory that cannot be deterred.

So far, few are prepared to predict that this is all going to last - and for a very good reason. The baby boomers are coming to test the Medicare system as it has never been tested before.

It’s also not like we haven’t seen these kinds of fluctuations before.

Medicare rates are incredibly responsive to policy changes. When those policies put the clamps on what the government is willing to pay to the providers that care for our seniors, the growth in Medicare spending slows- and vice versa.

Going back to 1992, Congress reacted to unacceptable growth in government Medicare expenditures by instituting the Volume Performance Standard (VPS) whereby physicians were incentivized to see more patients if they wanted to keep up with what they had been earning from Medicare prior to the changes.

This cutback in physician payments was followed by the Balanced Budget Act of 1997, where government put the breaks on the rates paid to hospitals and post-acute care providers along with the first real regulations targeting fraud in hospital, home health, and hospice benefits.

A year later, having found that the VPS payment formula instituted to control payments to physicians was producing too much volatility, Congress went to the sustainable growth calculation (SGR) - the payment formula that is still with us to this day and causing a whole bunch of trouble.

As you might imagine, after all these policy changes designed to slow spending in Medicare were instituted, the growth curve did slow dramatically.

Then came the Balanced Budget Refinement Act of 1999, the bill that was something of a political rejection to the work done in 1997. After a few years of loud provider complaints and effective arm-twisting by the health care lobbyists, providers achieved a significant raise in pay rates and Medicare benefits were expanded to include some brand new services.

As a result, by 2002, the growth in Medicare payments had taken off once again - and continued to be a problem right through to the end of the decade.

But it wasn’t all about increased payments to hospitals, doctors and home health care workers. There is a significant part to all this that people always seem to forget when discussing costs in health care.

A fair share of the rising costs of health care over the past decade is attributable to some wonderful - if expensive - medical technologies and modern age innovations that are not only keeping you and I alive longer (I know that I am still alive because of these advances), but is also permitting us a quality of life at an older age than we have ever experienced before.

The problem is that these great steps forward cost big money - a bill that is passed along to the consumer or, in the case of consumers over 65, to the federal government.

So, why the sudden pull back in the rise in the cost of health care?

According to one-time White House health care policy advisor Zeke Emmanuel, we can thank the ACA for the slowdown in Medicare cost growth.

Emmanuel points out that the providers treating Medicare beneficiaries know they are going to be forced by the ACA to find real savings by the end of 2013 and understand that they have to get started with this now.

If Emmanuel is correct - and I think that, to a point, he is - this would be an example of pricing reacting to policy changes, not unlike what we experienced as the result of the 1997 legislation.

Indeed, we know that the growth in all health care costs have been decelerating since early 2010.

While many correctly attribute this deceleration to difficult economic times causing consumers to put off physician visits and elective procedures (and the co-pays that come with them) coupled with a general acceptance in the provider community that they must face up to lowering their costs, I think there may be something else at work - something that would also account for the dramatic slow down in the increasing cost of Medicare.

Explains David Blitzer, Chairman of the Index Committee at Standard & Poor’s (via Dailymarkets.com):

Historically, there has been a general pattern of healthcare trends declining on a lagged basis following economic downturns. Much of our spending on healthcare is related to supply-side factors - in particular, the supply of new technology and procedures. It takes considerable time for investments in healthcare to translate into increased supply and, conversely, reduced investments often result in a reduction in trend a few years later. The decline in index growth rates that began in mid-2010 may be a result of trends slowing due to reduced capital spending during the recession that began in 2007.

Mr. Blitzer has hit the proverbial nail on the head.

While our Great Recession combined with the policy effects of the ACA may be bending the Medicare cost curve, it is likely doing so at the expense of technology and other innovations that could keep our seniors with us a little longer so that they can enjoy and participate in the lives of their grandchildren.

This is the real sacrifice that our seniors are being forced to make and the reason I cannot help but inject a small, dark cloud into the discussion.

So, as we celebrate this happy development and take note that this may be yet another important benefit of the Obama health care reform, let’s not lose sight of the realization that there is a real-life cost that comes with these victories - a cost that you, or someone you love, may ultimately have to pay.

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Rick Ungar is an attorney in Southern California and a frequent writer, speaker and consultant on health care policy and politics. He is a contributing writer at Forbes. Readers can reach him at rickungar [at] gmail [dot] com.


  • marty on August 18, 2011 12:09 PM:


    I thought that Obamacare had cost "a trillion dollars" already and was a waste.

    Oh, sorry - I was listening to dipshit Michelle Bachmann

  • Ray Waldren on August 18, 2011 12:34 PM:

    Republican Healthcare -- Death Panels, Soylent Green?

    Senator Coburn (R-OK) on Medicare:“Medicare Part A trust fund. Worst-case scenario this year to 2016. That is the fund that solves and pays for hospitalizations for our seniors…The average Medicare recipient paid $130,000 into Medicare. The average Medicare recipient takes $350,000 out. How long do we think that can continue? How long can we continue to tell seniors that we can continue a program based on its utilization rates, based on its reimbursement rates, based on the tax rates, that has a $220,000 difference between what goes out in benefits versus what comes in? It is broke”


  • clearvoice on August 18, 2011 3:30 PM:

    Hey Ray! did you read past the first line? I guess not. That's a liberal for ya.. Read and make up your own stories. The cuts began under Clinton and technology in the past decade, you know under PRESIDENT BUSH had a profound effect. Yes to be fair Obamacare had some effect. Doctors are leaving so less money to pay. Now, if you check, we have the Joe Wilson "You Lie" moment which, what ya know, is true. Illegals are getting funding from Obamacare. 28 million of which you are paying for. Then we have the 50 billion of (be quiet now) and not let the people know about all the workers who will be thrown off by their employers along with their wives & children which will add to the overall cost.
    Your history lesson is over for today.

  • Rick Ungar on August 18, 2011 4:00 PM:

    clearvoice - if you are going to teach history, maybe it would not be a bad idea to actually know the history?
    I'm kind of wondering what you found in the ACA that is going to be funding healthcare for illegals. I've read the entire bill 3 times, written scads of articles about it and I have yet to find that provision - so maybe you can direct me to it?
    As for all those workers who will be thrown off their employers benefits programs, that is a pretty interesting twist on history as, from what we have seen so far, the precise opposite is the case. Indeed, we've seen a very healthy rise in small businesses that had no health care benefits in the past purchasing the same now. Why? The tax credit! Oh ,you didn't know about the small business tax credit? Nah....you're a history teacher so I'm sure you've researched this, no?
    Oh...and by the way...lets' pretend that more employers do drop their benefit programs where we now see the employee paying roughly 50% of the cost of the policies provided. Know what happens? Why they will be moving over to the exchanges that will begin in 2014 where they will be able to purchase family policies at a cost roughly equal to what they've been paying as their share of their employment benefits (some say less, but we really don't know yet so I don't want to misstate.)

    I'm not quite clear if you are suggesting that cuts took place in a big way under President Bush. I may not be understanding your point, but it this is what you are trying to suggest, I think you might a large number of Republicans who would remind you of that whole Medicare Part D thing that was proposed and passed under President Bush.

  • Cha on August 18, 2011 7:39 PM:

    Yes, the part D Meicare was passed under Bush and a republlcan congress and not paid for. No problem for them.. they just raised the debt ceiling 7 times. Adding to the huge Debt that was left President Obama.

  • Nathan on August 18, 2011 10:54 PM:

    All I have to say is that I always really enjoy it when the writer of the article calls out commenters that are full of it...nicely done.

  • sherifffruitfly on August 19, 2011 1:02 AM:

    More terrible news for the sooperdooper progressive anti-Obama killbillies.

  • Rick Ungar on August 19, 2011 2:04 AM:

    Nathan - get used to it, bro! I'm one of those writers who likes to interact with commenters. I figure if you can take the time to read the article and comment on it, I can certainly take the time to respond.

  • myne on August 19, 2011 9:07 AM:

    Woo! The first world is impressed. Only twice as expensive and still doesn't yet cover everyone.

  • research on August 19, 2011 11:22 AM:

    the way to fix medicare and extended for longer than what is projected is to end the tax cap and allow medicare to negotiate for cheaper drugs and doctors would be better if they were more compensated

  • Ronald Steury on August 19, 2011 5:45 PM:

    As a physician, I want to thank you for your thoughtful article. Your statement that "A fair share of the rising costs of health care over the past decade is attributable to some wonderful - if expensive - medical technologies and modern age innovations that are not only keeping you and I alive longer... but is also permitting us a quality of life at an older age than we have ever experienced before." is brought up far too infrequently and needs to be understood when talking about the enormous cost of health care.

    Sooner or later, a choice will need to be made as to whether we can continue to provide this extremely expensive medical care to all people (I don't think we can) and how we can fairly ration it. (I know, it is a dreadful word but I don't see how it can be avoided.)

  • angelatc (@AngelaTC) on August 19, 2011 8:27 PM:

    Of course we'll have to ration it. But instead of allowing the market to ration it, we're going to have bureaucrats rationing it. The Obama plan made it clear that they weren't going to allow all those fancy-schmancy newfangled technologies to drain their coffers, so of course they'll become less available. You can't legislate the laws of economics, and price ceilings create shortages.

  • Jonathan Davis on August 19, 2011 11:50 PM:

    Can somebody explain to me the difference between a government bureaucrat and an insurance company bureaucrat? Aside from the fact that the Government bureaucrat has to follow a fixed code of qualifications and an Insurance bureaucrat receives bonuses and incentives for increasing profits by arbitrarily denying coverage?

  • Maggie Mahar on August 20, 2011 3:56 PM:

    Since you lifted the Zeke Emanuel quote from an interivew I did with Zeke (and published five days before this column appeared) I'm surprised that you didn't refer to and link to the post which readers can find here. http://www.healthbeatblog.com/2011/08/medicare-spending-slows-sharply-few-seem-to-notice-part-1.html#more

    This post was the first to highlight the fact that both S&P and CBO show Medicare spending slowing sharply--beginnign in January 1-- another reason I'm surprised that you didn't link to it.

    Also what you say about hte baby-boomers reigniting spending anytime soon is false. Very few boomers born in the late 40s. We won't see the real effect of the bulge
    until 2025 -- by that time health care reform will have had a chance to cut spending sharply.

  • epegoblue on August 21, 2011 10:24 AM:

    That sounds promising at best, but I'll only get excited if the decreases continue for 10 years, not just one.

  • Joe H. on August 22, 2011 3:53 PM:

    Maggie Mahar:

    You said;

    "Very few boomers born in the late 40s."

    Here are U.S. births from 1943-1950.

    1943 2.9 million
    1944 2.8 million
    1945 2.8 million
    1946 3.47 million
    1947 3.9 million
    1948 3.5 million
    1949 3.56 million
    1950 3.6 million

    Do you have ANY idea what you are talking about?

    Joe H.
    Stevensville, MD

  • Rick Ungar on August 25, 2011 9:14 PM:

    Maggie - sorry about not linking to your piece, but I'm afraid I didn't read the Zeke info from your post. As you note, your piece was published 5 days before this one was written and the info was pretty wide-spread by then. No intentional 'lifting' involved but very sorry if you felt this was the case.

    And while I really don't know if your post was the first to highlight the S&P and CBO info- but will certainly take your word for the same - I hope you won't mind if I point out that I've been getting the S&P index materials for years and, when possible, always prefer to cite the actual report itself, as I did in this piece.

    Finally, I don't believe that I said that the baby -boomers were going to ignite spending - I think what i said is that experts are not quite ready to say that this promising trend will continue. Why? Because they are mindful of the increase numbers that are about to hit the Medicare system. I certainly hope you turn out to be right. How you are so certain of this, however, is not something I can quite grasp.

    Again, apologies if you feel that you were improperly omitted via link and I'm pleased that you added it yourself as your pieces are always well worth reading. But I hope you'll understand my going to the actual source as the basis for the S&P material as they actually wrote it first, no?

  • LA Crystal on August 27, 2011 1:58 AM:

    Mr. Unger: Thank you for the article and your polite responses to comments.

    I have been fortunate to have been healthy (despite my own bad habits) and almost never need to visit a doctor except for routine check-ups. I have noticed my dentist has modernized equipment which allows them to see what they're working on almost as if under microscope (and it's displayed on a monitor). A former boss had heart surgery during the time that I worked for him and it was performed remotely by a surgeon in another country! Astounding.

    Anyway, my question is whether some of the technologies also become less expensive over time as we've seen with other technologies (computers, etc.). I realize there is often a large R&D investment, but once the technology is in use, couldn't we see costs coming down as a result?

    I know this next point goes off on a politically volatile tangent, but wouldn't more preventative measures also help overall health care costs? If so, it should be mentioned in all the controversial EPA and FDA discussions as well.

    Thanks again.

  • Rick Ungar on August 31, 2011 10:46 AM:

    LA Crystal-
    To answer your last question first - absolutely preventative measures make a huge difference in health costs. I support preventative behavior and care completely. However, we would be foolish to believe that preventative medicine will solve all of our health care cost problems as we know that many of the more serious illnesses are the result of your genetic pool rather than living habits. How else do you explain that 300 pound guy you play cards with while you smoke cigars who can't run up a flight of stairs but never has a heart attack? Meanwhile. people who live right, eat right, etc. end up hooked up to the chemotherapy IV getting treatment for the same cancer their mother had.

    As for tech prices coming down as time goes on, they do indeed come down. The cost of a MRI today is dramatically less than what it cost when the machine first was introduced. So, yes, as R&D and purchase prices are amortized, the cost of purchase - and, therefore, use - do always come down.

    The thing is, new and better tech is, thankfully, always being introduced and that means higher costs.

  • Mike Kelly on August 31, 2011 11:55 AM:

    Mr. Ungar:

    I agree with your article 110% and have already shown it to a few of my right wing naysayer friends. The only thing that I would like to point out is that even with all of our newfangled medical advances, we're still something like 38th in the world in quality of healthcare, even though our costs are astronomical. So maybe all this newfangled technology doesn't compare to lifelong, affordable healthcare in terms of overall health of citizens.

  • Rick Ungar on September 04, 2011 5:09 PM:

    Mike Kelly - a very fair point. I do think, however, that were we to make this technology available to all Americans, we would leapfrog to the top of the list very quickly. The problem is the huge number of Americans who do not have access to the healthcare system, including the benefits of the technoogy.