• The Medicare miracle
    September 02,2014
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    So, what do you think about those Medicare numbers? What, you havenít heard about them? Well, they havenít been front-page news. But something remarkable has been happening on the health-spending front, and it should (but probably wonít) transform a lot of our political debate.

    The story so far: Weíve all seen projections of giant federal deficits over the next few decades, and thereís a whole industry devoted to issuing dire warnings about the budget and demanding cuts in Social Securitymedicareandmedicaid. Policy wonks have long known, however, that thereís no such program, and that health care, rather than retirement, was driving those scary projections. Why? Because, historically, health spending has grown much faster than GDP, and it was assumed that this trend would continue.

    But a funny thing has happened: Health spending has slowed sharply, and itís already well below projections made just a few years ago. The falloff has been especially pronounced in Medicare, which is spending $1,000 less per beneficiary than the Congressional Budget Office projected just four years ago.

    This is a really big deal, in at least three ways.

    First, our supposed fiscal crisis has been postponed, perhaps indefinitely. The federal government is still running deficits, but theyíre way down. True, the red ink is still likely to swell again in a few years, if only because more baby boomers will retire and start collecting benefits; but, these days, projections of federal debt as a percentage of GDP show it creeping up rather than soaring. Weíll probably have to raise more revenue eventually, but the long-term fiscal gap now looks much more manageable than the deficit scolds would have you believe.

    Second, the slowdown in Medicare helps refute one common explanation of the health-cost slowdown: that itís mainly the product of a depressed economy, and that spending will surge again once the economy recovers. That could explain low private spending, but Medicare is a government program, and shouldnít be affected by the recession. In other words, the good news on health costs is for real.

    But what accounts for this good news? The third big implication of the Medicare cost miracle is that everything the usual suspects have been saying about fiscal responsibility is wrong.

    For years, pundits have accused President Barack Obama of failing to take on entitlement spending. These accusations always involved magical thinking on the politics, assuming that Obama could somehow get Republicans to negotiate in good faith if only he really wanted to. But they also implicitly dismissed as worthless all the cost-control measures included in the Affordable Care Act. Inside the Beltway, cost control apparently isnít considered real unless it involves slashing benefits. One pundit went so far as to say, after the Obama administration rejected proposals to raise the eligibility age for Medicare, ďAmerica gets the shaft.Ē

    It turns out, however, that raising the Medicare age would hardly save any money. Meanwhile, Medicare is spending much less than expected, and those Obamacare cost-saving measures are at least part of the story. The conventional wisdom on what is and isnít serious is completely wrong.

    While weíre on the subject of health costs, there are two other stories you should know about.

    One involves the supposed savings from running Medicare through for-profit insurance companies. Thatís the way the drug benefit works, and conservatives love to point out that this benefit has ended up costing much less than projected, which they claim proves that privatization is the way to go. But the budget office has a new report on this issue, and it finds that privatization had nothing to do with it. Instead, Medicare Part D is costing less than expected partly because enrollment has been low and partly because an absence of new blockbuster drugs has led to an overall slowdown in pharmaceutical spending.

    The other involves the ďsticker shockĒ that opponents of health reform have been predicting for years. Bulletin: Itís still not happening. Overall, health insurance premiums seem likely to rise only modestly next year, and they are on track to be flat or even falling in several states, including Connecticut and Arkansas.

    Whatís the moral here? For years, pundits and politicians have insisted that guaranteed health care is an impossible dream, even though every other advanced country has it. Covering the uninsured was supposed to be unaffordable; Medicare as we know it was supposed to be unsustainable. But it turns out that incremental steps to improve incentives and reduce costs can achieve a lot, and covering the uninsured isnít hard at all.

    When it comes to ensuring that Americans have access to health care, the message of the data is simple: Yes, we can.

    Paul Krugman is a columnist for The New York Times.
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