Some politicians would have you believe that the slowing of health care costs is the result of Obamacare. The fact is virtually all that slowing is a result of the economy and the impact of shining light on health care over the past several years. There is no reason to think it will last. Health care cost inflation will be back, not that it actually left given the rate of increase is still more than twice general inflation.
I have written about the Social Security COLA and Medicare premium several times, but I thought you would like another opinion. Here is what a recent article from Money says (Time.com):
The question now: How long can the good news persist? Worries about Medicare’s long-range financial health persist, but for now persistent low healthcare cost inflation will translate into a monthly premium of $104.90 next year for Part B (outpatient services), according to the Medicare trustees. Meanwhile, the Centers for Medicare & Medicaid Services (CMS) says the average premium for a basic Part D prescription drug plan will rise by about $1, to $32 per month.
The Part B premium has been $104.90 since 2012—except for 2011, when it actually dropped by about $15, to $99.90. The moderation is good news for seniors, since premiums are deducted from Social Security checks. Beneficiaries will keep all of next year’s Social Security cost-of-living adjustment, which likely will be about 1.7%.
Meanwhile, the average Part D premium has been $30 or $31 since 2011. That’s because of a dramatic shift to cheap generic drugs, and innovation by plan providers competing for customers.
The reality is there is no good news. The Part B premium should be increasing every year given Medicare is still in fiscal trouble. The time will come when there will be substantial increases or other changes to cope with costs. Unlike the Hospital Insurance Trust (Part A), Parts B and D of Medicare can’t run out of money, premiums and general revenue just keep rising to meet costs and each years premiums are based on growth estimates.
Here is an excerpt from the current Medicare Trustees report. Look at the historical and projected growth percentages, do you see any zeros? Then look at the projected growth for the US economy. There is an assumed annual 5% growth in the US economy over the next five years. After you read the paragraph below, read what the Congressional Budget Office says about growth of the US economy that follows in the next paragraph.
My opinion is that politics is affecting the premiums more than the reality of increasing costs. If Part B costs are expected to rise 5.7% annually over the next five years, why is there no increase in premiums for 2015? Is the key general revenue income?
The SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to cover expected costs and ensure a reserve for Part B contingencies. Part B and Part D costs have averaged annual growth of 6.2 percent and 7.2 percent, respectively, over the last 5 years, as compared to growth of 2.7 percent for GDP. Under the projected baseline scenario, the Trustees project an average annual Part B growth rate of 5.7 percent over the next 5 years; under current law, the average annual Part B growth rate would instead be 4.9 percent. For Part D, the estimated average annual increase in expenditures is 9.9 percent over the next 5 years. The projected average annual rate of growth for the U.S. economy is 5.0 percent during this period, significantly slower than for Part D and slightly slower than the growth rate for Part B.
The Economic Outlook Through 2017 from the Congressional Budget Office
Real GDP is projected to grow by 3.1 percent this year, by 3.4 percent in 2015 and 2016, and by 2.7 percent in 2017.
Beginning in 2018, CBO’s projections of GDP are based not on forecasts of cyclical movements in the economy but on projections of trends in the factors that underlie potential output, including total hours worked by labor, capital services (the flow of services available for production from the nation’s stock of capital goods, such as equipment, buildings, and land), and the productivity of those factors. In CBO’s projections, the growth of potential GDP over the next 10 years is much slower than the average since 1950. That difference stems primarily from demographic trends that have significantly reduced the growth of the labor force. In addition, changes in people’s economic incentives caused by federal tax and spending policies set in current law are expected to keep hours worked and potential output during the next 10 years lower than they would be otherwise. Although CBO projects that GDP will expand at the same rate as potential GDP, CBO also projects, on the basis of historical experience, that the level of GDP will fall slightly short of its potential, on average, from 2018 through 2024.
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