CBO: Medicare spending is slowing faster than expected

CBO also reported slower spending growth for Medicaid

The Congressional Budget Office (CBO) on Tuesday lowered its Medicare spending projections for the next decade by $137 billion, noting that federal spending on the program has been "significantly lower" than predicted for the past three years.

According to the report, Medicare spending in fiscal year 2012 grew by just 3%, to $551 billion, the slowest recorded rate of growth since 2000. Despite the slowdown, CBO estimated that total Medicare spending will reach $1.079 trillion in fiscal year 2023.

The report also showed a slowdown in spending in Medicare Parts A and B, which have risen by an average of 2.9% annually since 2009, compared with an average growth rate of 8.4% between 2002 and 2009.

CBO analysts said the changes reflect reduced growth in overall health care spending. "In recent years, health care spending has grown much more slowly both nationally and for federal programs than historical rates would have indicated," CBO wrote. The authors added, "For example, in 2012, federal spending for Medicare and Medicaid was about 5% below the amount that CBO had projected in March 2010.

According to CBO's new estimates, Medicare spending is expected to remain at about 3% of the gross domestic product until 2019, when it will climb to 3.5% of GDP by 2023.

Medicaid spending forecast

Meanwhile, CBO estimated that Medicaid spending between 2013 and 2022 will be 5.5% lower, or $236 billion less, than previously projected. CBO now expects Medicaid spending to reach $572 billion in 2023. CBO also lowered its forecast for per beneficiary Medicaid spending.

According to "Healthwatch," the decrease in per person spending is the result of the Affordable Care Act's (ACA) Medicaid expansion, which will add healthier beneficiaries to the program.

ACA forecasts

The CBO report also estimates that the Affordable Care Act will cost about $1.3 trillion over the next 10 years, up slightly from its previous estimate of $1.17 trillion, The Hill's "Healthwatch" reports. However, budget analysts noted that the new estimate included fiscal year 2023 and said that the previous estimate "remains essentially unchanged."

Despite the cost of the ACA, CBO has estimated that the law will reduce the deficit because it has provisions that will raise enough revenue to offset its costs. For example, in 2012 CBO estimated that a GOP bill to repeal the ACA would increase the federal deficit by $109 billion over 10 years.

In addition, CBO estimated that there will be 12 million new Medicaid beneficiaries by 2022, and increased its projection for the number of individuals who will enroll in the ACA's health insurance exchanges by 500,000, to 26 million individuals by 2022.

However, CBO noted that it does not believe the insurance exchanges will be ready for individuals to enroll and will offer fewer insurance options than previously expected. In the short term, CBO expects two million fewer individuals to be enrolled in the exchanges by 2014.

Meanwhile, CBO increased its estimate for the number of U.S. residents who would lose their employer-sponsored health insurance because of the ACA. Although CBO always expected this to be the case, it figured that some companies would opt to have their employees obtain coverage through the publicly subsidized health insurance exchanges instead of offering coverage themselvesits new report increases that estimate from four million U.S. residents to seven million U.S. residents.

According to CBO, the new estimate is the result of the American Tax Payer Relief Act, which maintained lower tax rates for U.S. residents with annual incomes below $450,000. The lower rates "reduce the relative attractiveness of employment-based insurance for low-income workers and for their employers." In essence, offering health coverage as a tax-free form of compensation is less appealing when marginal tax rates are lower and a publicly subsidized option is available. CBO estimated that employers will pay $13 billion more in fine for non-compliance with the ACA's employer mandate.

Meanwhile, CBO estimates that individuals will pay $11 billion less for not complying with the law's individual mandate, largely because it expects more U.S. residents will have incomes low enough to be exempt from the individual mandate.

CBO lowers estimate to eliminate sustainable growth rate formula

CBO also dramatically reduced its estimate for eliminating the sustainable growth rate formula (SGR), which sets Medicare physician reimbursement rates, from about $300 billion over 10 years previously to $138 billion, CQ HealthBeat reports. According to CBO, the lower cost of eliminating the SGR is primarily because of reduced spending on physicians' services in recent years.

According to CQ HealthBeat, the reduced costs could help an effort in the House to develop a bipartisan alternative to the SGR. Jeremy Lazarus, president of the American Medical Association, on Tuesday said that "now is the time to end this failed policy once and for all and protect access to care for seniors now and in the future" (Viebeck [1], "Healthwatch," The Hill, 2/5; Kliff, "Wonkblog," Washington Post, 2/5; Reichard [1], CQ HealthBeat, 2/5 [subscription required]; Morgan, Reuters, 2/5; Viebeck [2], "Healthwatch,The Hill, 2/5; Sanger-Katz, National Journal, 2/6; Reichard [2], CQ HealthBeat, 2/5 [subscription required]).

Next in the Daily Briefing

Sandy-struck hospitals plan for the next ‘superstorm’

Read now