Three Magical Numbers for 2013

Will health and mental health spending be part of the next Grand Bargain, Mini-bargain, or No Bargain at all?2013 could be the ultimate transition year for health policy – a wait-and-see time before the big changes ACA brings in 2014.  Or it could be much more.

Forget this week's latest budget drama.  Three often little-noticed numbers over the next few months will tell us much more about how this health policy year will eventually unfold.

The first is the Medicare “cost rate” projection for the next 75 years.  It will arrive in April in the Annual Report of the Medicare Trust Fund trustees.  This projection will tell us how much we need to worry about the present and future cost of our favorite entitlement program.

The second – especially in the aftermath of Sandy Hook – is the number of cuts or additions states make to their mental health budgets.  We’ll know this by the late spring or early summer.  It will tell us just how much our legislators have been moved by recent news to improve mental health services around the country.

The third will come in July.  It is the health care inflation rate for the past year, which is typically published in July in Health Affairs.  This will tell us all we need to know about the cost of health care in general, and the Affordable Care Act in particular.

The overall health care inflation rate matters to everything and everyone. 

In both of the past two years, the health care inflation rate was below 4% - the first time this has happened in a generation. 

This went largely unnoticed, because insurance costs are just beginning to catch up. 

But in a $2.7 trillion health economy, every 1% reduction in inflation is worth about $27 billion. And with health inflation currently projected at 5.7% annually over the next decade, more low numbers could eventually mean a difference of about $50 billion in health care spending per year. 

Over ten years, that’s around $500 billion of avoided spending – half of the total cost of the Affordable Care Act.

The Medicare “cost rate” projection could have just as big an effect on the way we address the long-term cost of Medicare. 

The Medicare Trust Fund trustees quantified the Medicare crisis this way on page 32 of their 2012 report.  They wrote that the average “income rate” for Medicare would be 3.86% over the next 75 years, and the average “cost rate” would be 5.12%.  That leaves an average deficit of 1.35% annually – the amount by which we would have to raise Medicare taxes or reduce Medicare services to keep the program solvent.

But there are two factors that influence the cost rate – the increasing Medicare population and the increased cost of health care services.  We already have a pretty good idea about the projected Medicare population over the next 75 years.  What is less certain is how much health care will cost.

That’s where health care inflation comes in again.  If it goes down, then so will the projected Medicare cost rate.

Then the life of the trust fund will be extended beyond 2024, Medicare’s projected share of GDP will go down, and the feeling of crisis around the Medicare program may dissipate in the coming year.

Mental health spending levels will tell us even more than lagging public health expenditures about how serious we are about prevention.

This is because states have been cutting both public health and mental health budgets for the last few years.  States will have to revisit both of these decisions in the wake of Sandy Hook.  Public health cuts are predictors of crises to come.  But mental health cuts are predictors of crises of the day.

Mental health cuts have so squeezed providers that they can no longer meet the service needs of our population.  Court systems and prisons are absorbing the pressure, increasing costs to states.  And when state mental health cuts are aimed at children’s services, we all eventually pay the price. 

There will be plenty of opportunities for states to improve mental health services.  Periodic mental health screening for children and adults, improving special education services, and re-directing adult mental health spending from jails to community mental health centers are just a few examples. 

Even before Sandy Hook put a spotlight on the lack of mental health services, the tens of thousands veterans returning from the Middle East were becoming a growing constituency for increased mental health funding.

We often say that there can be no disagreement about supporting our troops or our children.  And - despite the recent compelling evidence that our elected officials are incapable of rational, timely compromise - we’ll have our chance to prove it yet again this year.

Let us hope we don’t come up short.

Questions?  Email gionfriddopaul@gmail.com.  Follow Paul Gionfriddo on Twitter @pgionfriddo.