State of the Union: Medicare AEI on the HillJanuary 29, 2013

Joseph R. Antos, Ph.D.Wilson H. Taylor Scholar in Health Care and Retirement PolicyAmerican Enterprise Institute

AEI2

Has Medicare $ turned the corner?

2008 2009 2010 2011

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%5.3%

4.3%

1.8%

3.6%

0.9%

-3.1%

2.9% 3.2%

MedicareGDP

Slower Per Capita Medicare Spending in Last 3 Years

Total Medicare spending continues to grow significantly faster than the economy—Is GDP + ½% feasible?

Comparable growth rates for total spending and GDP: 8.0% 1.9% 6.9% -2.2% 4.3% 3.8% 6.2% 4.0%

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AEI4

Federal health spending and the budget

Social Security Medicare Medicaid, CHIP, Exchange

Other Spending Interest Deficit0

2

4

6

8

10

12

14

16

18

5.0

3.7

1.7

11.6

1.4

7.7

6.26.7

3.7

9.6 9.5

17.2

2012 2037

Federal spending as a percentage of GDP, Alternative Fiscal Scenario*

Assumes aging accounts for 52% of growth in health spending and 68% in health and Social Security

*Assumes Medicare physician fees held at 2012 level, IPAB does not take effect, current law reductions in per-person exchange subsidies not enforced, other automatic spending reductions not enforced.

AEI

Better choices for seniors Better incentives for providers More effective competition among

health plans Greater security for beneficiaries,

today and tomorrow

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Key elements of Medicare reform

AEI

Simplify and improve Medicare’s benefit◦ Combine Part A + Part B; single deductible; catastrophic

limit Reform Medigap

◦ Limit first dollar coverage Promote fair competition

◦ Similar to Part D: Plan bids determine risk-adjusted payment, better information for seniors to choose traditional Medicare or private plan

Reform payment policies◦ Permanently resolve physician payment

Align eligibility age with longevity

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A menu of practical options