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The Boomers Are Coming, But Don’t Panic Yet



February 28th, 2008

The good people in the Office of the Actuary (OA) at the Centers for Medicare and Medicaid Services (CMS) take great pains every year to summarize and explain their health spending forecast without spin or exaggeration. The editors of Health Affairs are perennially grateful to them for taking an approach that helps the journal fulfill its mission of providing clear and objective analysis to inform debates on health policy.

Thus, it is perennially disappointing to see how casually the careful CMS analysis is inevitably overlooked to fit the doomsday scenarios anticipated by pundits and politicos, and how quickly the policy discourse prompted by the forecast deteriorates into the rote repetition of preconceived interpretations. The disconnect between what the OA said this year and what the press and the politicians heard is especially noteworthy because this is the first time the analysis has focused on the long-dreaded enrollment of the first cohorts of baby boomer retirees into Medicare.

Spending to “surge,” “soar,” “rise dramatically,” said the headlines. What did the CMS say? The actuaries forecast that annual growth in overall health spending will increase at an average rate of 6.7 percent over the next ten years. This compares to double-digit increases in the 1980s; a 7.3 percent average from 1990 to 1995; 5.7 percent from 1995 to 2000, during the peak years of managed care; and 8.2 percent from 2000 to 2004.

From 2004 to 2006, health spending growth exceeded growth in the U.S. gross domestic product (GDP) by an average of only 0.3 percentage points annually, so that health spending has remained virtually flat as a percentage of GDP. The OA predicts that the health share of GDP will begin to rise again toward 20 percent during the ten-year projection period because of a slowdown in overall economic growth. This crucial “excess growth rate” of health spending over GDP is expected to average a worrisome 1.9 percentage points from 2008 to 2017, but is substantially below the 2.7 percentage-point average over the past thirty years. And the forecast assumes that current law remains in force. A reduction in Medicare Advantage (MA) insurance subsidies or in Part D drug prices could reduce the total, for example. So could a cap on private-sector tax subsidies.

In a particularly unfortunate Associated Press report, which ran in both the Washington Post and the New York Times, the growth rate was described as “nearly three times the rate of inflation.” The OA estimates that medical price inflation fell to 3.2 percent in 2007 and will rise to about 3.4 percent through 2012 and 3.8 percent from 2012 to 2017. General inflation is currently estimated at about 2.5 percent (and rising) — excluding food and energy prices. So medical price inflation is about half again as high as core general inflation, and less than general inflation if volatile food and energy prices are included. That’s a far cry from three times as much.

House Minority Leader John Boehner (R-OH) found cause for alarm in the OA’s estimate that Medicare spending would rise to 20.7 percent of national health outlays in 2017, after six years of boomer retirements. But the percentage in 2006 was only about 19 percent, and the actuaries noted that the changing proportion is partly due to a reduced rate of growth in private spending as these bulging cohorts migrate from private to public coverage. “It’s not going to create a huge jump,” said Sean Keehan, lead author of the OA report. “Some people have found it surprising that it’s not more.”

Health spending growth represents a profound challenge for the body politic, and is worthy of a profound debate. Reps. Jim Cooper (D-TN) and Paul Ryan (R-WI), for example, put their oars in on this site earlier this week. But the biggest challenge may be whether that debate can be conducted with evidence, intelligence, and diplomacy. The squabble over insurance mandates between the leading Democratic presidential candidates does not bode well, nor do knee-jerk arguments between the Right and Left over “market-based reform” versus a single-payer system. The whole point about spending growth is that in a consumption-happy society, we somehow have to learn to exercise restraint. That means that everyone can’t get everything they want. The same principle applies to the debate itself: it can’t be a winner-take-all affair. And policymakers shouldn’t have to pretend that an apocalyptic crisis is at hand before they roll up their sleeves and get to work.

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2 Trackbacks for “The Boomers Are Coming, But Don’t Panic Yet”

  1. Farmanux News
    March 4th, 2008 at 6:01 pm
  2. Healthcare 100 links for 02-29-08 | eDrugSearch Blog
    February 29th, 2008 at 11:48 am

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