Slower Medicare spending growth—'the new normal'?

NEJM Perspective: Three factors driving slowdown

Although federal health care spending is a serious fiscal threat, two health care experts predict that recent Medicare spending slowdowns may foreshadow a long-term trend.

According Center for Studying Health System Change's Chapin White and Paul Ginsburg, Medicare spending growth per enrollee over the past four decades has outpaced growth in per capita GDP by 2.6 percentage points per year, a rate that would lead Medicare to consume all federal revenues by 2060.

However, the authors say there have been several indications that Medicare spending growth is slowing. For example, White and Ginsburg note that:

  • Medicare expenditure growth per enrollee in 2010 and 2011 was roughly aligned with overall economic growth;
  • Monthly Medicare Part B premiums are expected to cover 25% of overall Part B spending; and
  • The Congressional Budget Office in January lowered its 10-year Medicare spending projections by $69 billion.

According to White and Ginsburg, the slowdown is a reflection of tighter Medicare payment policies, including the Deficit Reduction Act of 2005—which reduced payment for certain imaging and home health services—and the Medicare Improvements for Patients and Providers Act of 2008, which made deep cuts to Medicare Advantage plans.

In addition, they note that the series of "doc fixes" passed by Congress—which averted substantial cuts to physician pay—have caused physician fee increases to fall further and further below the relevant inflation index.

White and Ginsburg expect the federal health reform law to further slow Medicare spending growth. Although they note that Congress may override Medicare provider cuts included in the law, they write that provisions promoting ACOs, medical homes, bundled payments, readmission reduction initiatives, and other programs that reward efficiency have "the potential to allow providers to generate savings through steps that are less threatening to quality of care and access than are cuts in payment" (White/Ginsburg, NEJM, 3/7 [subscription required]; Lowes, Medscape Medical News, 3/7).

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