James Pethokoukis

The great Andrew Biggs makes a great point about the Medicare advisory commission in the Senate healthcare bill, a cost-control measure that Peter Orszag calls one of the most potent in the bill:

The new board is empowered to impose cost reductions if Medicare cost growth exceeds the growth of Gross Domestic Product plus 1 percent. Congress must accept these reductions or come up with equivalent cuts of their own.

But here’s the problem: Medicare’s baseline level of growth is right around GDP plus 1 percent. In the past, the Medicare trustees made their “GDP plus 1” cost growth assumption explicit; currently, they use a more sophisticated model of healthcare cost growth that nevertheless mimics the effects of GDP plus 1.  (See pages 178–180 of the 2009 Trustees Report.) CBO’s projected rate of “excess cost growth” is slightly higher than the trustees’, but this plays out mostly in the longer term, by which time we’re long since broke.

In other words, the Medicare advisory commission—despite all the controversy over “rationing care”—isn’t tasked with much more than limiting Medicare cost growth to a rate baseline which some experts have calculated will generate over $62 trillion in deficits over 75 years. Even if Medicare cost growth were held to GDP plus 1 percent, total costs through the 2030s would cut by only around 5 percent.