Medicare: A Healthcare Business Model that Controls Costs

Dec 12, 2016 5:00 PM ET

Healthcare costs in 2015 grew at the fastest rate in eight years, according to a new report by the Department of Health and Human Resources. Costs increased by 5.8% for a total healthcare spending of $3.2 trillion. The drivers? The expansion of coverage under the Affordable Care Act has resulted in more use of more insurance, and many of the newly insured have turned out to be sicker, requiring more care.

Secondly, the costs of prescription drugs continue to climb. Spending on drugs increased by 9%. Clearly, a new business model is needed if healthcare costs are going to be managed. Policy makers looking for examples might check out the HHS report for its analysis of Medicare. That program grew by only 4.5%, although 10,000 older baby boomers signed up every day on reaching eligibility age. Medicare spending grew by just 1.7% on a per-beneficiary basis.

The program’s design could be a good guide toward a future health care policy that manages costs. I’m John Howell for 3BL Media.