By John Reichard, CQ HealthBeat Editor
January 10, 2013 -- In what could give new leverage to those who want to avoid deep Medicare cuts as part of any deficit package later this year, the Obama administration released a report last week showing that per capita spending growth in the program increased by just 0.4 percent in fiscal 2012.
The increase comes after modest, but considerably larger, per capita growth of 3.6 percent in fiscal 2011 and 1.8 percent in fiscal 2010.
The slow per capita growth in 2010-2012, combined with government projections that Medicare spending for 2012-2022 will only grow at the rate the gross domestic product increases, "is unprecedented in the history of the Medicare program," said the report by Richard Kronick and Rosa Po of the Department of Health and Human Services (HHS) Office of the Assistant Secretary for Planning and Evaluation.
"If sustained, the slower growth would improve Medicare's ability to meet its commitments to seniors and persons with disabilities in future generations," the report said.
But administration officials did not respond to requests seeking the 2012 percentage increase in overall Medicare spending. And that's something that critics of the report say means more than per capita spending.
"This is amazing," a Democratic congressional aide said of the per capita number. "For the most part this is not recession. Medicare recipients are for the most part elderly and therefore somewhat immune to job losses. I think this is very much ACA [Affordable Care Act] and providers getting the message."
Democrats hope that tighter provider reimbursement under the health care overhaul law (PL 111-148, PL 111-152) will lead hospitals and other providers to reduce their own costs.
"It should imply that we should build on ACA-related policies and do not need structural reform—like premium support and vouchers and more beneficiary cost-sharing or premium increases," the aide added.
Former Centers for Medicare and Medicaid Services (CMS) Administrator Tom Scully said the modest increase isn't surprising.
Scully said the health law tightened reimbursement for private health plans in Medicare, whose membership now makes up one quarter of the Medicare program. Those plans are responding by driving down expenses, he said.
A second likely factor according to Scully was the recession, contrary to the view of the Democratic aide. He said fewer people in the Medicare fee-for-service program can afford supplemental Medigap coverage in a down economy and so are less likely to obtain health care services.
Scully, who ran CMS during the George W. Bush administration, downplayed the chances the findings would lead to less pressure for cuts in Medicare entitlement spending. "I think you're still going to want to reduce the baseline," he said.
Kronick and Po said the health care law was an important factor in slowing Medicare per capita spending growth. "The Affordable Care Act restrains the rate of growth of payments to Medicare Advantage plans, restrains the rate of growth in unit payments to hospitals and other providers, promotes value-based payment systems, and makes major investments to reduce fraud and abuse," they said.
The authors of the report added that "the aging of the U.S. population will put a strain on the financing of the Medicare program. Although spending per beneficiary is projected to grow at or below the rate of GDP per capita, the number of Medicare beneficiaries is projected to increase by approximately 3 percent annually. As a result, aggregate Medicare spending will account for a growing share of GDP over the next decade."
Further reducing per beneficiary cost growth below the increase in the Gross Domestic Product "is an important component of responding to fiscal pressure," Kronick and Po continued. "But recent reductions in the growth of Medicare per beneficiary spending and projections for the next decade offer strong evidence that we have made great progress," they said.
The pair acknowledged that the recession may have played a role in lowering per capita spending increases. They also noted that the entry of baby boomers into the program is bringing down the average age of the Medicare population and—because they are relatively healthy—helping to lower per capita spending increases. But the authors described both the recession and the boomer influx as small contributors to the slowing growth trend.
Analysts on the right pointed to the percentage increase in overall Medicare spending—as distinct from per capita spending increases—as the more significant figure. American Enterprise Institute scholar Joseph Antos said in an email message that "it's not time to declare victory over cost."
Antos suggested that the percentage increase for fiscal 2012 in overall Medicare spending could be considerably higher than the per capita increase.
He said 2011 showed a 3.6 percent growth in per capita spending but a 6.2 percent increase in total Medicare spending. "That is not a trivial difference."
Antos added that "when we say that Medicare spending growth is much slower, we're still talking about very sizeable amounts of additional money being pulled out of other spending priorities. That's a part of the problem that often gets short shrift by health policy commentators." And he noted that while having a younger Medicare population helps hold down per capita increases over the next decade, "the demographics start to work against us" as that population ages and their care costs more.
Former Congressional Budget Office Director Douglas Holtz-Eakin said of the 0.4 percent increase, "that's a very promising number but until I'm convinced that that's a sustained trend that's going to continue over time I wouldn't put too much credence on a single observation."
A former Clinton Administration official at HHS agreed. Emory University professor Kenneth Thorpe said "there's probably really nothing much that's pulled any costs out of the system at all. We...are just paying less on a unit basis for what we pay health care providers. You can generate short term reductions but that's not a sustainable long term strategy."
