Medicare’s $3.9 Trillion Spending Surprise

Medicare’s $3.9 Trillion Spending Surprise

The Senate is back after a lengthy August recess.
ABACA press
By Yuval Rosenberg and Michael Rainey
Tuesday, September 5, 2023

We’re back and so is the Senate, which last held a vote way back on July 27. As we ease into the final days of fiscal year 2023, which ends on September 30, Congress has very little time left to extend federal funding and avoid a government shutdown once the calendar turns to October.

Here’s what’s on our radar:

Lawmakers Return to Washington With a Big To-Do List

The Senate returned to Washington today, 41 days after its last vote, and the House will return next week. Lawmakers have an enormous amount of work to do before the end of the month, and very little time to do it. Here are some of the major items on Congress’s to-do list:

* Fund the federal government. With the fiscal year ending on September 30, lawmakers need to find a way to prevent a government shutdown on October 1. It would be nearly impossible for Congress to pass the 12 appropriations bills that fund large parts of the government each year before the end of the month, so a short-term budget deal known as a continuing resolution (CR) is the likely path forward. Even that common outcome could be problematic, though, with lawmakers wrangling over just how long the CR should last. To please conservatives who want to avoid a spending bill holiday rush, the CR could end up lasting just a few weeks.

* Pass a supplemental funding package. The White House has requested $44 billion in supplemental spending, including $16 billion (up from $12 billion) for disaster relief, $24 billion in military and humanitarian aid for Ukraine, and $4 billion for additional security at the U.S.-Mexico border. Conservatives may resist most if not all of that extra spending, though the need for additional disaster relief could help move a larger package along.

* Address expiring programs. Numerous programs are running up against deadlines, including flood insurance, FAA authorization, the farm bill (which is mostly food aid) and a child-care “cliff” involving the expiration of $24 billion in federal aid passed during the pandemic.

Complicating these already complicated tasks will be a political environment that isn’t getting any easier as House Republicans push for an impeachment investigation of President Joe Biden and members of both parties start to rev up their reelection efforts. It could be a very long couple of weeks.

Quotes of the Day

“The only way to avoid a shutdown is through bipartisanship. I urge, I plead with House Republican leadership to follow the Senate’s lead and pass bipartisan, Democrat and Republican Appropriations bills, supported by both parties.”

Senate Majority Leader Chuck Schumer of New York, as quoted at The Hill, calling on House Republicans to drop their demands for policy provisions on a stopgap funding bill needed to avoid a government shutdown after the end of the month. Schumer warned that the conservatives’ wish list can’t pass and that a shutdown would be pointless.

The House Freedom Caucus has raised the odds of a shutdown by insisting that any government funding bill should cut discretionary spending below the $1.59 trillion cap set as part of the deal to raise the debt limit earlier this year. The conservatives also demanded the inclusion of a Republican border bill and measures targeting what they call the weaponization of the Justice Department and “woke” Pentagon policies.

“Despite the pharma companies’ fears, negotiating Medicare prices will not lead to a ‘nuclear winter’ — just perhaps a small chill in their profit margins.”

Richard G. Frank and Caitlin Rowley of the Schaeffer Initiative on Health Policy at the Brookings Institution, writing Tuesday at Bloomberg Opinion.

The authors argue that the doomsday predictions from pharmaceutical firms about the negative effects of price negotiations over 10 of the most expensive drugs covered by Medicare — which include claims of a “nuclear winter” for innovation due to lower profits — have no basis. According to their analysis, even with lower prices, the top 10 drugs will still produce enormous profits, more than enough to cover the cost of new R&D. “Not only are revenues enough to justify the investment in these particular drugs, they are enough to fund several more generations of pharmaceutical development,” they write. “Lower negotiated prices are unlikely to deter further investment in similar medications.”

‘The Most Important Thing That Has Happened to the Federal Budget in the Last 20 Years’

Something strange has been happening with Medicare, The New York Times reports: “Instead of growing and growing, as it always had before, spending per Medicare beneficiary has nearly leveled off over more than a decade.”

If Medicare’s spending per beneficiary had continued along the trajectory it had been on two decades ago, the program’s spending from 2011 until now would be some $3.9 trillion higher and deficits would have been more than a quarter larger, according to an analysis by The Upshot, part of the Times site.

“Without a doubt, this is the most important thing that has happened to the federal budget in the last 20 years,” David Cutler, a professor of health policy and medicine at Harvard, told the Times. Cutler helped the Obama White House develop the Affordable Care Act, which appears to be one reason for the shifting trendline.

Margot Sanger-Katz, Alicia Parlapiano and Josh Katz of the Times note that scholars have been debating the causes of the slowdown in per-person spending. “Some of the reductions are easy to explain,” they write. “Congress changed Medicare policy. The biggest such shift came with the Affordable Care Act in 2010, which reduced Medicare’s payments to hospitals and to health insurers that offered private Medicare Advantage plans. Congress also cut Medicare payments as part of a budget deal in 2011.”

But most of the savings relative to earlier projections are harder to attribute, the authors write. Americans appear to be having fewer heart attacks and strokes, which cuts health care costs. The absence of expensive new blockbuster drugs and treatments could also be a factor. And the country’s medical system has become more cost-conscious as well: “Parts of the health system appear to have become more efficient, as medical providers have been more cautious about adopting new therapies without much evidence, and more care has shifted outside hospitals into cheaper settings,” the Times team writes.

Still a concern: The improved per-person trend may have allowed policymakers to put off debates about changes to Medicare, but Medicare is still growing faster than the rest of the federal budget and still faces budgetary uncertainty. “Medicare’s spending is unlikely to disappear as a concern for the budget and policymakers,” the Times notes. “An aging population means the number of Americans relying on the program is growing rapidly. And analysts continue to worry that the trend is an aberration, and that some new development — an effective Alzheimer’s drug, a cultural turn away from cost cutting, the health burden of long Covid or some other chronic condition — will return Medicare spending to form.”

Chart of the Day

A recent paper published by the National Bureau of Economic Research provides further evidence that investing more resources in auditing capacity at the IRS provides a positive payoff for the federal government.

Analyzing the results of in-person individual income tax audits between 2010 and 2014, researchers from the Treasury Department, Harvard University and the University of Sydney found that the average revenue produced by such efforts was $14,283, with an average cost of $6,418 — producing an “average revenue yield” of $2.17 per dollar spent by the IRS.

The return on audits of taxpayers in the 0.1% of the income distribution was markedly better, with each dollar spent by the IRS producing $6.29. Focusing on lower-income taxpayers was far less productive, however. Audits of those in the bottom 50% of the income distribution produced just 96 cents per dollar spent, making such efforts losing propositions.

“The findings suggest that putting more money toward IRS funding may be one of the most efficient ways to clip Washington’s blooming deficit, which, despite the growing economy, is expected to double this year thanks in part to unexpectedly weak tax revenues,” says Semafor’s Jordan Weissmann. “They’re also sure to be a talking point for Democrats looking to defend the IRS from attacks by Republicans in Congress, who have rallied around clawing back the agency’s funding. This year’s debt ceiling deal would already reduce the pot by $21 billion.”


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