June 07, 2022
The projected Medicare savings from ACA is almost as large as the current projected shortfall for the Social Security program.
The 2022 reports from the Board of Trustees for Social Security and Medicare show the finances of both programs improving modestly since the 2021 reports. The projections for Medicare showed a reduction in the projected shortfall over the 75-year planning horizon from 0.77 percentage points of payroll to 0.70 percentage points. This is attributable, in part, to improved economic assumptions, but also due to reduced payments to private plans operating within the Medicare program. The 2022 Trustees projected costs in these plans will rise somewhat less rapidly than had been projected in the 2021 report.
The lower projected shortfall in the Medicare program supports the early optimism about the impact of the Affordable Care Act (ACA) on health care cost growth. In 2009, before the ACA was approved, the Medicare Trustees projected a shortfall over the 75-year planning period equal to 3.88 percent of payroll.
This projected shortfall was reduced to just 0.66 percent of payroll based on the assumption that the reforms in the ACA would lead to slower growth in costs. At that time, the Trustees explicitly warned that this projection assumed savings that may not be realizable over the long-term:
“However, this substantial improvement depends partly on the long-range feasibility of downward adjustments to increases in payment rates for all categories of HI [Hospital Insurance] providers in all future years. In the context of today’s health care system, these reductions would probably not be viable indefinitely into the future and would likely result in HI payment rates that would eventually become inadequate to compensate providers for their costs of treating beneficiaries, with adverse implications for beneficiary access to care.”
In short, in 2010 the Trustees were not sure that the savings they anticipated at the time would be realized. It is now 12 years later, and the trustees still accept that Medicare expenditures are on a much lower growth path than they were before the passage of the ACA. The projected savings from this lower growth path for Medicare costs is almost as large as the currently projected shortfall for the Social Security program. This is a hugely important, and little appreciated, benefit from the ACA.
In the case of Social Security, the projected shortfall over the program’s 75-year planning period fell from 3.54 percentage points of payroll to 3.42 percentage points of payroll. This reduction was primarily due to an improved short-term economic picture, with the economy recovering more rapidly from the pandemic recession than had been projected.
Reduced rates of disability also were a factor in lower projected shortfalls. The percent of the workforce receiving disability has fallen substantially in the last decade. This improves the program’s finances, although it likely means that many people who are disabled are not collecting benefits to which they are entitled. In the 2022 Trustees Report, the disability program is projected to be fully funded throughout its planning period.