Health affairs
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Many policy makers believe that when Medicare constrains its payment rates for hospital inpatient care, private insurers end up paying higher rates as a result. I tested this "cost-shifting" theory using a unique new data set that combines MarketScan private claims data with Medicare hospital cost reports. Contrary to the theory, I found that hospital markets with relatively slow growth in Medicare inpatient hospital payment rates also had relatively slow growth in private hospital payment rates during 1995-2009. ⋯ These payment rate spillovers may reflect an effort by hospitals to rein in their operating costs in the face of lower Medicare payment rates. Alternatively, hospitals facing cuts in Medicare payment rates may also cut the payment rates they seek from private payers to attract more privately insured patients. My findings indicate that repealing cuts in Medicare payment rates would not slow the growth in spending on hospital care by private insurers and would in fact be likely to accelerate the growth in private insurers' costs and premiums.
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Policy makers have considerable interest in reducing Medicare spending growth. Clarity in the debate on reducing Medicare spending growth requires recognition of three important distinctions: the difference between public and total spending on health, the difference between the level of health spending and rate of health spending growth, and the difference between growth per beneficiary and growth in the number of beneficiaries in Medicare. ⋯ The Affordable Care Act created a projected trajectory for Medicare spending per beneficiary that is lower than historical growth rates. Although opportunities for one-time savings exist, any long-term savings from Medicare, beyond those already forecast, will probably require a shift in spending from taxpayers to beneficiaries via higher beneficiary premium contributions (overall or via means testing), changes in eligibility, or greater cost sharing at the point of service.
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Analysis of data from the National Medical Expenditure Survey and the Medical Expenditure Panel Surveys from 1987-2009 reinforces previous observations that increased prevalence of treated disease has become the main driver of increased spending on health care in the United States. Higher treated disease prevalence and higher spending per treated case were associated with 50.8 percent and 39.0 percent, respectively, of the spending increase seen in the population ages eighteen and older, while their joint effect accounts for the remaining 10.2 percent. ⋯ Moreover, the current findings reveal a substantial contribution to the increase in total spending (10.4 percent) from a doubling of the share of the population considered to be obese and from increases in treatment intensity, a component of spending per treated case (11.9 percent), in 1987-2009. Constraining the cost of health care will require policy options focused on reducing the incidence of disease, as well as improved understanding of the extent to which more aggressive treatments for chronic conditions do, or do not, result in lower morbidity and mortality.