MEDICARE: Spending Hits 35-Year Low
A combination of a "tough campaign to root out fraud" and low inflation has helped to slow Medicare's spending growth to the lowest level in 35 years, according to a report from the Health Care Financing Administration issued today, the Los Angeles Times reports. And if those savings are maintained, "they could guarantee Medicare's financial soundness for years and delay the drastic changes some politicians have warned will be necessary to keep the program solvent for the so-called baby boom generation." These findings, published in the January/February 2000 issue of Health Affairs, note that between 1997 and 1998, Medicare spending rose only 2.5%. The "most surprising surge of savings" was the $500 million doctors, hospitals, home health care agencies, testing laboratories and providers of medical equipment have been forced to pay to the government for defrauding Medicare in 1998. D. McCarty Thornton, chief counsel to the inspector general at HHS, said, "The most significant effect on health care expenditures is the change in providers' behavior as a result of the enforcement effort." Marilyn Moon, a Medicare expert at the Urban Institute, added, "The major effort to go after fraud has paid greater dividends than anyone expected." Improper payments to Medicare, or money lost to fraud or spent for services that weren't medically justified, were reduced to $12.6 billion annually, down from $23 billion in 1996. Gail Wilensky, former HCFA director, predicted that the fraud efforts "certainly will not lighten up in an election year." Because of the spending slowdown, the year that the hospital trust fund will run out of money has been pushed back several years from the earlier prediction of 2015. Bruce Vladeck, former head of HCFA, said, "It's going to be later than last year's report ..., so we're talking about the next 15 to 20 years" (Rosenblatt/Rubin, 1/10). Economists warn, however, that the "downward trend in Medicare spending may be short-lived because Congress voted last year to restore about $12 billion of the earlier cuts" (Scripps Howard News Service/Minneapolis Star Tribune, 1/10).
Overall Spending Up
While Medicare spending has decreased, rising prescription drug costs and insurance premiums increased the growth in the nation's health care bill for 1998. Private health care spending increased by 6.9%, compared to a 4.8% increase in 1997. Total health care spending increased 5.6% in 1998 to $4,094 per person or $1.1 trillion, in contrast to 4.7% in 1997. Specifically, spending on prescription drugs grew more than any other category, climbing 15.4% in 1998 to $90.6 billion ( AP/Contra Costa Times, 1/10). Much of the growth in the private sector came from private health insurance, which saw a jump in premiums by 8.2% in 1998 -- double the rate of the previous three years. Benefit payments rose at about the same rate. The report also found the following:
- Prescription drug spending was the fastest growing of all other personal care spending due in large part to increased consumer demand, which was spurred by direct-to-consumer advertising;
- Private spending on hospitals rose from 3.9% to 6.1% in 1997-1998 compared to Medicare spending, which slowed from 5.6% to 0.9% in 1998;
- Private insurance was responsible for most of the $229 billion spent on physician services in 1998, comprising 50.5% (Health Affairs release, 1/10).