Improving Health Care Cost Projections for the Medicare Population Summary of a Workshop (2010) / Chapter Skim
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2 Current Models of Health Care Cost Projections
2 Current Models of Health Care Cost Projections
Pages 7-30
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Medicare cost modeling for health care spending at the Congres sional Budget Office (CBO)
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MEPS is a key source of data on many aspects of health care cost modeling, including estimates of people lacking health insurance coverage, provisions of employer-provided health care plans, and estimates of health care coverage and expenditures for the most populous states. PREDICTING MEDICARE COST GROWTH John Friedman (Harvard University)
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Depending on the types of external assumptions made about how and when Medicare cost growth is going to slow down, one gets very different projections with different implications. Microsimulation Microsimulation has been used by several modelers.
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In closing, Friedman observed that technology, which is thought to drive much of the growth in health care costs, is totally absent from all of these models. There is a growing body of research on how technological
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described the framework for CBO's long-term cost projections for Medicare and other federal health care programs, the outlook for the federal budget, and the assumptions regarding cost growth in Medicare and other health care spending.1 She also identified some of the strengths and limitations of the CBO approach. Framework for Long-Term Medicare Cost Projections CBO examines the pressures facing the federal budget over the coming decades in the context of current law.2 Most of Manchester's presentation was based on current law, which, among other things, assumes that many of the tax reductions passed early in the decade will expire and that Medicare's reimbursement rates for doctors will be constrained much more than has been true in the past.
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While its long-term detailed projections for Social Security are developed in the microsimulation model, its projections for Medicare, Medicaid, and other health care spending are developed at a more aggregated level in the actuarial framework. All other federal spending is assumed to grow with GDP.
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CBO's approach to modeling health care costs, including Medicare, is fraught with uncertainty. A tremendous amount of uncertainty surrounds health care spending growth over 25 years and even more so over a 75-year horizon.
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Medicare projections are required by statute and must be made in the context of current law -- that is, premised on the indefinite continuation of existing statutory provisions pertaining to the Medicare program.4 So the Medicare Trustees report is premised on payment over 75 years of projected benefits as specified under current law and projection of program revenues also as scheduled under current law. In particular, regarding Medicare expenditures, CMS seeks to project the state of the world if benefits now promised under current law were maintained indefinitely.
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Projection background Although OACT's approach for making long-range Medicare cost projections has evolved over a lengthy period going back to the late 1970s, most of the more interesting work started in the 1990s.5 The long-range projection uses a core assumption about the average per beneficiary rate of health care expenditure growth (exclusive of adjustments for age and gender effects) in excess of the rate of growth of per capita GDP for the last 51 years of the 75-year projection horizon.
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For years 11-25 of the projection horizon, the expenditure growth projections are based on a straight-line transition from A, B, and D excess cost ratios for year 10 to consolidated, program-wide excess cost ratios that begin in year 25. Projections for years 25-75 are based on excess cost ratios from the CGE model.
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It then occurred to OACT that it would be useful to illustrate the impact of demographic factors on Medicare costs in the longer term. At that time there was no intention of depicting any type of excess cost growth, and the age-gender modeling initiative effectively assumed a rate of per beneficiary cost growth exclusive of age-gender effects equal to the rate of per capita economy-wide GDP growth.
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In the long run, it is expected that cost-sharing burdens in current law will make Medicare costs grow faster than the income and resources available to Medicare beneficiaries. For all parts of the Medicare program, out-of-pocket costs are growing at about the same rate as program costs, which is faster than people's incomes.
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• A contract to evaluate evidence for cost-saving spillovers among health care subsectors was recently concluded. • A contract that examines the usefulness of time-series methods for long-term health care cost projections is in its final stages.
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He also addressed the data capacity and statistical quality of modeling efforts and the underlying requirements for the validity and accuracy of health care cost projections. The significance of health care expenditure trends is clear when one considers current estimates as well as future projections.
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The survey provides national information on health care use, expenditures, insurance coverage, sources of payment, access to care, and health care quality. In addition to aggregate estimates, MEPS permits studies of the distribution of expenditures and sources of payment, such as the concentration of expenditures among population groups; the role of demographics, family structure, and insurance coverage in health care costs; expenditures for specific conditions; trends over time, such as the persistence of the concentration of expenditures; and impacts of changes in employment and changes in insurance coverage on health care use and expenditures.
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Particular attention is given to the sample of individuals with high health care expenditures or those who are likely to incur high levels of expenditures, both in terms of optimizing response rates and obtaining additional information on expenditures from their medical providers. That is critical, considering that the top 1 percent of users accounts for 27 percent of total health care expenditures and has a significant impact on the precision of overall survey estimates.
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Uses of MEPS Data to Inform Health Policy AHRQ has been able to provide Congress and others with research findings to inform health care policy on coverage trends and costs, such as national estimates of the long-term uninsured in terms of what the cost provisions would be of covering the uninsured, not just at a point in time but over a 2-year period; estimates of the number of uninsured children eligible for the State Children's Health Insurance Program; state estimates of the availability and cost of employer-sponsored coverage; concentration of health care expenditures; and premium percentiles of high-cost plans. Some of the areas of research using MEPS data include access, use, and quality of health care services; levels and trends in expenditures; private and public health insurance; and health conditions and health behaviors.
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Today using MEPS data, these capabilities remain the survey's strength, with the addition of a Medicaid/Children's Health Insurance Program eligibility simulation model; data on expenditures by service, including prescription drug expenditures; estimates of coverage and expenditures for most populous states; improved tax simulation models; and data from the employer health insurance survey by state. Attributes of Modeling Cohen next addressed some of the statistical dimensions in health care modeling that are important to consider in deciding on a database and model specification and in determining the credence to give to the model results for short-term and longer term projections by policy analysts.
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Reconciling MEPS and the National Health Expenditure Accounts The National Health Expenditure Accounts (NHEA) , developed by CMS and MEPS, provide the two most comprehensive estimates of health care spending in the United States.
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DISCUSSION Participants had comments and questions on CBO's assumptions on excess cost growth in the private and public sector, the issue of level of enrollment in Part B, the requirement for CBO and CMS to stay within current law, and the role of taxes as a constraint on the growth of health care spending. Joseph Newhouse (Harvard University)
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If that is the case and if, in the long-term future, for example, Medicare costs were to grow faster than private health insurance costs, then that would tend to suggest that Medicare beneficiaries would get all of the new technology that comes along and privately insured persons would not. That scenario is simply not plausible.
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Has there been any effort to model that? In response to the first question, Foster said that CMS has not explicitly taken into account improved health status and its effect on health care costs in the future, although it does that somewhat implicitly.
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But CBO does not envision under current law a substantial slowdown in Medicare spending. Foster maintained that significant changes in health care expenditure growth may reasonably be assumed, even with no change in current law.
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A few years ago, there was a rash of models developed by others about the long-term growth of government spending, and many of these ended up projecting unrealistic high levels. Some of the questions raised in this session about the constraints imposed by assuming current law in cost projections and what brakes could be put on health care spending were also discussed in the next session (see Chapter 3)
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