NCPA - National Center for Policy Analysis

What Health Reform Means For Medicare

May 16, 2011

In recent decades, real Medicare spending has been growing at a rate roughly equal to the rate of growth of real gross domestic product (GDP) plus two percentage points.  That means Medicare has been growing at twice the rate of growth of national income.  The Patient Protection and Affordable Care Act (PPACA) seeks to limit Medicare's growth rate to the rate of GDP growth + one percent.  This is the ultimate spending path assumed by the Congressional Budget Office (CBO), say Thomas Saving, a senior fellow, and John C. Goodman, president, at the National Center for Policy Analysis.

However, the legislation also calls for additional productivity improvements which have the effect of lowering Medicare's growth rate to GDP growth alone.  This is the growth path assumed by the Center for Medicare and Medicaid Services (CMS) in the most recent Medicare Trustees report.  Since this report is an executive branch report, Saving and Goodman treat this report as reflecting the Obama administration's view of its own health reform.

To get an idea of who the winners and losers are under reform, consider:

  • By 2065, Medicare spending on hospital Part A services will be half of what it would have been under the old law.
  • Medicare spending on doctors (Part B services) will be 61 percent of what it would have been under the old law.
  • Yet remarkably, Medicare spending on drugs (Part D) will barely have changed at all.

What do these projected changes in aggregate Medicare spending mean for individual retirees?

  • For someone turning 65 and enrolling in Medicare this year, the present value of projected Medicare spending was reduced by $35,588 the day Barack Obama signed the health reform bill.
  • For 55-year-olds, the projected reduction in Medicare spending is $62,315 per person.
  • For 45-year-olds, the loss totals $105,004.

Source: Thomas Saving and John C. Goodman, "What Health Reform Means For Medicare," Health Affairs Blog, May 12, 2011.

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