Good Medicare news may not be good enough

Policymakers will be watching for a repeat of last year’s good news when the Medicare trustees release their annual report to Congress on July 28.

Even if the recent spending slowdown continues, economists warn the trade-offs necessary to accommodate Medicare’s growth as baby boomers move into the program will be difficult. Economists at the Altarum Institute warn that federal healthcare spending would need to grow 1 percentage point slower than the economy for tax revenue to remain less than 20% of the U.S. gross domestic product. The alternatives are tax increases, cuts to defense, education and transportation, or both, Altarum economists wrote last year.

“It may not be possible to get (healthcare spending) low enough to avoid that dilemma,” Charles Roehrig, an economist who oversees the Altarum Center for Sustainable Health Spending, said ahead of the new trustee report.

Healthcare spending has historically exceeded economic growth. Per capita, it grew 1.9 percentage points faster than economic growth, on average, from 1975 and 2011, according to federal estimates.

There’s “a sizable financing shortfall” in the federal budget even without healthcare growth exceeding economic growth, William Gale, a Brookings economist, said in April. “If we cannot get healthcare spending under control, or keep it under control, depending on your perspective of what’s going on, there’s no hope for the federal budget.”