Medicare costs still declining

WASHINGTON  Innovations adopted and accelerated by the 2010 health care law will continue to force down overall Medicare costs, according to industry analysts and studies, even as the economy continues to improve.

Those changes include new payment plans, improved efficiency and a move toward consumer-driven insurance plans that started before the law's passage. They influenced the $618 billion drop in projected Medicare and Medicaid spending over the next decade reported May 15 by the Congressional Budget Office.

That report showed that costs for the two programs in 2012 were 5% less than projected in early 2010, and the CBO data are expected to foreshadow the spending projections in the annual Medicare trustees report scheduled to be released this week.

That slowdown could continue, said Michael Chernew, a Harvard Medical School health care policy professor.

Health spending grew about 3% a year from 2009 to 2011, Chernew said, a drop from the average 6% annual growth the previous decade. Some of that, he said, was because of the economic crisis that started in 2008.

However, an analysis of health costs for employees of large corporations showed per-employee health spending also decreased.

Those savings, Chernew said, came from more cost sharing for employees and higher co-payments and higher insurance deductibles. Those factors accounted for 20% of the reduced spending.

Such a slowdown, Chernew and fellow researchers concluded in a Health Affairs magazine study, could continue, which would have "a major impact on U.S. health spending projections."

Despite the promising signs, it may be too early to tell if the trend will continue, said Don Taylor, an assistant professor of public policy at Duke University in Durham, N.C. "It's too good to be true," he said, adding "how much work has to continue to keep costs down?"

Costs dropped in the 1990s, Taylor said, because of managed care programs, but they rose again.

"A couple of years from now, we'll have a good sense of how things have changed," he said.

Chernew also remembered the 1990s. "We wrote a paper saying that the costs would go up again," he said. Now, however, "I think it's reasonable to hope that when we bounce back post-recession, we'll see reduction in overall costs," he said.

"Something else besides the recession is going on," Chernew said. "We're seeing a new attitude of providers -- the cost pressures are really quite stringent."

The recession accounted for only 37% of the slowdown from 2003 to 2012, said David Cutler, a Harvard economist. Less private insurance coverage and cuts to Medicare payment rates accounted for 8%.

That leaves 55% unexplained, Cutler said, which he attributed to less rapid development of medical technology and new medications, increased patient cost-sharing and greater efficiency by care providers.

A continuation of that trend through 2012, he said, could cut public-sector health spending by $770billion less than predicted.

"One has to recognize the limits of forecasting for sure, but this is more than just a temporary slowdown," Cutler said.

The economy was responsible for 77% of the decline in spending, said a study by the Altarum Center for Sustainable Health Care Spending. That decline, the study said, was "fully expected" with the recession but the health care law can accelerate the trend.