The Centers for Medicare and Medicaid Services released some mixed news on Tuesday for health care reformers -- the results of two different Medicare Accountable Care Organization (ACO) programs in 2013. Twenty-three Pioneer ACOs and 220 ACOs in the Medicare Shared Savings Program (MSSP) generated somewhat modest savings of $372 million for Medicare while qualifying for shared savings payments of $445 million. Both programs performed better on quality benchmarks and patient experience compared to fee-for-service (FFS) Medicare. ACOs are one model that many reformers hope will provide a path forward for better coordinated, higher quality, and more affordable care delivery.
The Pioneer ACOs involve organizations and providers that are more experienced in coordinating care, so they are already on the second year of the program and have more ambitious savings targets. The Pioneers may share in savings if they exceed those targets but also face risk if they fail to meet them, unlike most MSSP ACOs. Overall, Pioneer ACOs saved $96 million, $41 million for the Medicare trust funds, and qualified for $68 million of shared savings payments. Eleven of the 23 ACOs qualified for those payments, while 3 had losses.
Earlier in the week, we highlighted a portion of CBO Director Doug Elmendorf's presentation at Cornell University highlighting the increased resources going to health care, Social Security, and interest spending to the detriment of the rest of the budget. In addition, the slideshow contained other helpful charts showing how the federal budget could change over the next decade, the choices policymakers face to alter the trajectory of debt, and a further look at the impacts of the Affordable Care Act. Here are some of the more interesting charts from that presentation.
Putting Debt on a Sustainable Path Requires Significant Changes
With debt set to continue to rise as a percent of GDP, simply maintaining the status quo will require significant changes. Keeping debt stable at its current elevated level of 74 percent of GDP for the next 25 years would require $2 trillion of savings over ten years, twice as much as the savings in the President's budget. Getting debt close to its historical average of 40 percent of GDP in 25 years will require $4 trillion in ten-year savings.
Individual Income Tax Revenue is the Only Growing Revenue Stream
CBO's ten-year projections show only a modest rise in revenue as a share of GDP over the next decade, from 17.5 percent to 18.2 percent, and in fact from 2015 to 2024 revenue will remain roughly flat.
Prior to the release of CBO's August baseline, we surmised that one of the revisions to the budget would come from Medicare, whose growth in 2014 had come in much lower than CBO expected. As it turns out, CBO did revise Medicare spending in 2014 down by $9 billion, with growth expected to be a very low 2.4 percent for the year.
In a highly anticipated release, the Centers for Medicare and Medicaid Services (CMS) this week released updated data and projections on National Health Expenditures (NHE) and its components. This release updates the last set of projections put out in January and extends the time period by a year to 2023. Overall, the latest projections show another year of slow health care spending growth in 2013, but a pick-up in growth starting this year.
NHE growth is projected to have been just 3.6 percent in 2013, similar to what it has been since 2009 and only slightly above the 3.4 percent economic growth rate for that year. Growth is then expected to pick up -- as it has in past projections -- to 5.6 percent in 2014 as a result of the coverage expansions in the Affordable Care Act kicking in. It will then decelerate to 4.9 percent in 2015 due to reductions in Medicare Advantage payments, the expiration of a temporary hike in Medicaid primary care physician payments, and stabilization in Medicaid enrollment. For the rest of the projection period, growth will hover around 6 percent. Over the 2013-2023 period, NHE growth is projected to average 5.7 percent, 1.1 percentage points higher than the 4.6 percent projected economic growth rate, but still roughly a percentage point slower than the recent historical average.
The newest projections represent an improvement over CMS's previous ones, as NHE spending has been revised down by a total of $860 billion over the comparable 2012-2022 window.
The Bipartisan Policy Center's Health Project has kicked off a series of white papers on overcoming the obstacles to delivery system reform with an overview of the opportunities and challenges for reform, over a year after producing a comprehensive health care reform proposal. The white papers will be done in consultation with a diverse set of health care policy experts and stakeholders.
With the "doc fix" set to expire in April 2015, threatening to cut Medicare physician payments by about one-fifth, an opportunity exists for lawmakers to put in place a fiscally responsible replacement system. So far, the "fiscally responsible" part has been elusive, but there appears to be bipartisan consensus on at least what the framework of the replacement would be. These plans generally would establish a value-based payment system where physicians would be penalized or rewarded from year to year based on quality metrics. The plans would provide bonuses to encourage physicians to transition to alternate payment models. This first paper notes this agreement creates opportunities not only at the legislative level to create a better payment system, but also for the Centers for Medicare and Medicaid Services, who would likely be tasked with fully fleshing out the payment reforms.
The paper identifies three general alternative payment models that could be considered for physicians and the health care system more broadly: bundled payments, patient-centered medical homes, and accountable care organizations (ACOs).
CBO's July Monthly Budget Review brings us ten months into the fiscal year, and it's time to update our tracking of the slow growth of Medicare so far in 2014. Through June, Medicare growth totaled 1.2 percent over the first nine months of FY 2014, or 3.6 percent when removing the effect of a number of temporary* or phased-in policies, mostly from the Affordable Care Act (what we refer to as the "underlying" growth rate).
The recent CBO Long-Term Budget Outlook confirmed that our long-term debt problems remain far from solved, with debt projected to exceed the size of the economy within 25 years. Federal spending, especially the mandatory portion of the budget, will continue to outpace revenue collected, running up debt and interest payments on that debt. Spending on Social Security and health care programs will grow by almost half from 9.8 percent of GDP today to 14.3 percent of GDP by 2039. Two factors are reponsible for major portions of the increase in mandatory spending: an aging population and "excess cost growth," when health care costs are growing faster than the rest of the economy.
Note: CBO has issued a more detailed score of the bill. The table has been updated to reflect these numbers.
We have already released our analysis of the 2014 Social Security Trustees' report, which showed that the program's long-term finances are largely similar but slightly worse than projected last year. Now it's time to turn to the Medicare report, which showed some improvement in the finances of the Hospital Insurance (HI) trust fund for Part A (which covers inpatient hospital and post-acute care) and lower Medicare spending on an apples-to-apples basis. However, the improvement in the Medicare outlook does not mean that the program is out of the woods. Even with assumptions that the Trustees question as too optimistic, the report forecasts a significant rise in Medicare spending, and the HI trust fund is projected to be insolvent in 16 years.
Hospital Insurance Trust Fund Solvency
The Trustees now foresee the HI trust fund being exhausted in 2030, four years later than they predicted last year, at which point payments from the trust fund would be cut by about 15 percent. The 75-year actuarial shortfall narrowed by one-quarter of a percentage point, from 1.11 percent of taxable payroll to 0.87 percent. These revisions are similar to those of Congressional Budget Office (CBO) earlier this month.
As a percent of GDP, Part A spending will rise from 1.5 percent this year to 2.1 percent by 2035 and 2.4 percent by 2070. Meanwhile, revenue will rise more slowly from 1.45 percent this year to 1.7 percent by 2035 and 1.8 percent by 2070. The HI fund is projected to run surpluses from 2015-2020, which would be the first time since 2004. However, deficits will quickly return and rise to 0.5 percent of GDP by the late 2030s, stabilizing at that level after.
Although most of our analysis of CBO's Long-Term Budget Outlook has focused on debt projections, CBO also makes projections about the solvency of trust funds over the long term. And, unfortunately, it finds that most major trust funds will become insolvent in the not-too-distant future.
CBO has already projected the impending disruption of construction projects due to the Highway Trust Fund depletion later this year, the 20 percent across-the-board benefit cut facing Social Security Disability beneficiaries sometime in FY 2017, and the need to address the Pension Benefit Guaranty Corporation's Multiemployer Pension fund by 2021. In this report, it finds that the the combined Social Security trust funds (assuming the SSDI program borrows from the Old-Age trust fund) and the Medicare Hospital Insurance (HI) trust fund will both run out of money around 2030. In other words, CBO projects that all the major trust funds will be depleted just over fifteen years from now. And, at that point, significant automatic benefit/payment cuts would take place.
As we touched on before, Social Security's projected finances are worse than last year, a product of lower payroll tax revenue and lower interest rates. On the other hand, the HI insolvency date has been moved back about five years due to CBO's continued downward revisions to Medicare spending. Still, these changes give a 15-year clock for both the Social Security trust fund and the HI trust fund. These trust funds would experience a sizeable cut in spending (benefits) to bring outlays in line with revenue when the trust funds are exhausted.
|Exhaustion Dates for Major Trust Funds
||Percent Cut Required
|Highway Trust Fund||FY 2015||28%|
|Social Security Disability Insurance||FY 2017||20%|
|PBGC Multiemployer Fund||FY 2021||87%|
|Medicare Hospital Insurance||~2030||~15%|
|Social Security Old-Age and Survivors Insurance||2032||~30%|
|Social Security Combined||2030||~27%|
Source: CBO, CRFB calculations