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Good news is bad news – Medical cost inflation’s continued decline

Perhaps the biggest news to hit this summer is the decline in medical inflation.

Make no mistake, this is very, very important.

Important – as in huge decreases in the federal deficit.

Important – as in low-single-digit health premium increases.

Important – as in placing huge pressure on health care systems, hospitals, and other providers – because low premiums for employers equals less income for providers.

Here’s what the data shows.

Today, CBO projects the 2019 Medicare spend will be $95 billion less than it projected four years ago.  That’s equivalent to a fifth of the military budget.  Or the entire budget for welfare, Amtrak, and unemployment.

Over a decade, the reduction is about $700 billion.  According to a piece in the NYTimes (link above);

much of the recent reductions come from changes in behavior among doctors, nurses, hospitals and patients. Medicare beneficiaries are using fewer high-cost health care services than in the past — taking fewer brand-name drugs, for example, or spending less time in the hospital. The C.B.O.’s economists call these changes “technical changes,” and they dominate the downward revisions since 2010…[CBO analysts say] the economy is playing a negligible role in what’s happening in Medicare, meaning that they’re more confident that the practice of medicine really is changing. (emphasis added)

That’s all good, right?  The fiscal cliff is farther away, and not nearly so steep and scary as it was even a couple years ago.

Not so fast. One person’s savings is another one’s income.  In this case, that “other one” is the healthy care delivery system – doctors, pharmaceutical companies, hospitals, device companies, health systems.

Those stakeholders are adapting as fast as they can, and making great strides.  But a big part of that adaptation is revenue maximization – making darn sure they are getting as many dollars from every patient as possible.

What does this mean for you?

Pretty obvious, methinks…

5 thoughts on “Good news is bad news – Medical cost inflation’s continued decline”

  1. Yet many news organizations will distort this news from the CBO today in an effort to continue the partisan divide. Further they will harp on the fact the deficit is slightly higher than the projections and fail to note the deficit is down significantly from last year. Or they will simply claim that all of the savings are due to the sequester which is partially true and attempt to use that to further decrease the social safety net.

    1. Does no one remember $700 billion funding was cut from the Medicare budget to fund Obamacare? Funny how this same number is constantly re-appearing to suit agendas.

      1. Mike – thanks for the comment and welcome to MCM.

        I’m not sure about your assertion; PPACA funding comes from a variety of sources: taxes on “Cadillac” health plans, medical devices, and tanning beds; penalties/taxes on people who don’t sign up; lower DISH funding for hospitals; fees for health insurance providers and pharma manufacturers; a 0.9% increase in the Medicare tax rate and a few other miscellaneous sources.

        I don’t recall a $700 billion Medicare reduction being among the sources – if you have a source I’d be grateful if you can share it.

  2. As the cost saving momentum grows, the medical technology industry will further add to these cost savings through the development of lower cost, higher effecient medical delivery. Getting some momentum in this area will really be significant. Historically medical development was always fully funded through pay for service. Cost was a secondary concern…if a concern at all. In the (near) future, medical technology will be paid for if it delivers effeciency along with effectiveness.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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