Growth in spending on Medicare and Medicaid is a function of (1) the aging of the population and (2) trends in the cost of health care. The Congressional Budget Office (CBO) has published an issue brief, Accounting for Sources of Projected Growth in Federal Spending on Medicare and Medicaid, which finds that health care cost growth per beneficiary relative to GDP growth will be a greater driver of health spending than the aging of the population.
The bottom-line: over half of the growth in federal spending on Medicare and Medicaid is attributable to health care costs per person growing more rapidly than per capita GDP.

This is true even as as boomers age and expand the Medicare population.

Health Populi’s Hot Points: Under the direction of Peter Orszag, the CBO has made health care a focus, and rightly so. Yesterday, he gave a compelling talk to the National Academy of Social Insurance (NASI) called “Health Care and Behavioral Economics.” In the talk, Orszag describes the importance of helping people make sound choices for their health behaviors — which when well-executed, can help stem per capita health cost growth. He told the NASI, “Restraining cost growth will therefore primarily require changing their choices. Cost constraints could be implemented by refusing to pay for certain services; I suspect, however, that more subtle actions will be more sustainable from a political economy perspective.”

I recently wrote about Nudge here in Health Populi, which speaks to this issue of how to motivate people to do the ‘right thing.’

As we frame health reform discussions, keeping behavioral economics in mind — and the role of personal responsibility for making sound health choices — should provide a key context for the dialogue. Cost growth isn’t about technology or prescription drugs or hospital beds in and of themselves. It’s about the decisions that people make about their consumption.