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Budgeteers Ponder Source of Health Spending Slowdown

By Rebecca Adams, CQ HealthBeat Associate Editor

July 16, 2014 -- House Budget Committee members fixated on a slowdown in Medicare spending asked Congressional Budget Office (CBO) Director Doug Elmendorf at a hearing last week how long the relief would continue and whether it is due to the 2010 health care law.

Projections CBO recently released found that spending in 2014 for Medicare, Medicaid, the Children's Health Insurance Program and health law subsidies to buy insurance will total about 4.8 percent of the nation's economic output. By 2039, funding for those programs will rise to 8 percent of the gross domestic product. That's lower than projections. "What's happened since that point is everyone has observed a great slowing in federal health care costs and private health care costs," Elmendorf told committee members.

The effect on federal spending is significant since Medicare consumes such a large portion of the budget. The change in projections means that budgeteers think the federal government will save more than a trillion dollars in federal health spending for the decade that started in 2010 compared to what they previously thought. The reasons for the slowdown in spending growth are less clear, Elmendorf said.

"It's hard to know what's happening," he said.

Elmendorf said there isn't a consensus among economists about how much of the slowdown is due to the sluggish economy.

"We don't think it's totally explained because we had a recession," he said. Medicare spending in particular is not influenced significantly by the health of the economy, he said.

The CBO believes that the health care law (PL 111-148, PL 111-152) will produce net savings, in part because of Medicare and Medicaid cuts that help pay for it. But Elmendorf was careful not to say that the law is a primary reason why spending growth has been held in check.

And the biggest uncertainty is how long the lower-than-typical growth will continue.

"The question for us and for everyone is for whether they can keep that going," said Elmendorf. He noted that in the 1990s, the nation saw a marked slowdown, in part because of the increased use of managed care plans that held down costs. But then in the following decade, spending growth rose again.

"We don't know yet how persistent this slowdown will be," he said.

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