MEDICARE: Spending Down 1% for First Time Ever
For the first time in its history, Medicare spending declined by 1% from 1998 to 1999 according to new Treasury Department statistics -- even as private health insurance plans reported increases of 4%-10%. Although the decline is slight, it is "significant because Medicare has grown every year since its creation in 1965," the New York Times reports. Robert Reischauer, former director of the Congressional Budget Office, said, "The decline in Medicare spending is a phenomenal development considering the increase in the number of beneficiaries and the resurgence of rapid growth in health costs in the private sector." Until cuts were imposed by the Balanced Budget Amendment in 1997, Medicare spending had been growing by 10% each year from 1990 to 1997. In 1998, spending climbed about 1.5%. Experts point to several factors that might have contributed to the recent decline. With increased vigilance against Medicare fraud, hospitals and other health care providers "have become more conservative in their billing practices and more diligent in trying to comply with federal rules." Also, Medicare is paying less for the average patient. Patients' hospital admissions and home health care visits have declined and "severity of illness" for the average patient has gone down.
Slower Pace Reduces Costs
Another reason for the decrease is that health care providers are taking more time to submit claims and in turn, the government has been slower in paying claims, which temporarily slows spending. Because inflation has been lower than expected, Medicare spending is lowered because payments generally include an allowance for inflation. Balanced Budget Amendment cuts have proved to be deeper than expected, contributing to more restricted spending. Marilyn Moon of the Urban Institute, a public trustee of the Medicare Trust Fund, said, "A lot of health care providers don't know what to make of the new law and the new rules, so they take a go-slow approach. They are interpreting the regulations even more stringently than they have to." Some experts also point to Medicare HMOs that in "theory, ... can save money for Medicare." But federal officials have charged that because of flaws in the reimbursement formula, the government spends more on average when patients join HMOs. But whatever the cause of the decline, most experts agree that the conditions that prompted it "may prove temporary" (Pear, 11/14). Robert Ball, a former commissioner of the Social Security Administration who helped start Medicare, said, "No one should expect a continuation of an actual drop in Medicare expenditures. The big story is that there is good reason now to hope for a rate increase well below the average of 10% a year of the recent past" (Gullo, AP/Boston Globe, 11/15).