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CBO: Medicare Spending Growth Rate Slowest in More Than a Decade

By John Reichard, CQ HealthBeat Editor

February 5, 2013 -- Medicare outlays grew by just 3 percent in fiscal 2012, the slowest rate of growth since 2000, according to a recent Congressional Budget Office (CBO) report.

And that slower pace of Medicare spending growth is projected to continue, with CBO analysts estimating relatively modest growth of 4 percent, or $21 billion, in fiscal 2013.

The revised Medicare figures contributed to the overall CBO projection that the deficit will shrink to $845 billion in fiscal 2013 under current law, its lowest level as a percentage of the economy since 2008. The fiscal 2012 deficit totaled $1 trillion.

Compared to its analysis released last August, CBO, citing technical adjustments, lowered its estimates of mandatory federal spending in 2013-2022 by $296 billion, largely because of Medicare and Medicaid adjustments.

CBO explained the change by noting the recent slowdown in overall health spending growth.

"In recent years, health care spending has grown much more slowly, both nationally and for federal programs, than historical rates would have indicated," the report said. "For example, in 2012, federal spending for Medicare and Medicaid was about 5 percent below the amount that CBO had projected in March 2010."

Health spending analysts inside and outside the federal government have tied the overall health spending slowdown to a decreased demand for health care services because of declines in income stemming from the recent economic downturn. But they've also speculated that changes in the way providers are paid to make them more efficient have helped to curb spending growth.

Democrats are eager to tie the slowdown to the health care overhaul law (PL 111-148, PL 111-152), which has trimmed Medicare payment increases to hospitals and other providers. But a number of the payment changes in the law touted by Democrats as cost-saving measures have yet to take hold on a widespread basis.

Wendell Primus, a senior health aide to House Minority Leader Nancy Pelosi, D-Calif., recently credited the health care law with helping to get Medicare per capita spending growth "down to its very lowest level." In terms of cost control, "we've done about as good a job as can be done, and that message needs to get out there," Primus told a Washington, D.C., conference sponsored by AcademyHealth, an organization that represents health services researchers.

CBO's projections show federal Medicare and Medicaid spending roughly doubling over the next decade, however, as many more baby boomers enter their retirement years and as Medicaid enrollment grows under the health care law.

Medicare spending will grow from $551 billion in fiscal 2012 to $1.079 trillion in fiscal 2023, according to the new projections. Federal spending on Medicaid will grow from $251 billion in fiscal 2012 to $572 billion in fiscal 2023, the CBO report said.

Gene Sperling, head of the National Economic Council at the White House, said last week that in order to encourage states to expand their Medicaid programs under the health care law, the Obama administration would not trim Medicaid spending in its upcoming fiscal 2014 budget proposal. During that speech, delivered at a conference sponsored by the left-leaning advocacy group Families USA, Sperling suggested that Medicare likely would take deeper cuts as a result.

However, the CBO numbers could lead Democrats to press for smaller Medicare reductions.

"The promises we made to the elderly and disabled in the form of Medicare, Medicaid and Social Security means that spending is going to go up," Primus said. "There is no other way, unless you are really going to go back on those promises."

CBO shaved its Medicaid spending estimate for 2013–2022 by 5.5 percent, or $236 billion less in federal Medicaid spending over that period. CBO also lowered its estimate of Medicaid spending per person and slightly reduced its estimate of Medicaid enrollment, down to 84 million rather than 85 million.

But the congressional analysts also noted that outlays for Medicare, Medicaid, the Children's Health Insurance Program, and subsidies offered through health insurance exchanges "will soon be even greater than outlays for Social Security. Spending for major health programs will be nearly 5 percent of GDP in 2013, and such spending is projected to grow rapidly when provisions of the [health care law] are fully implemented by mid-decade, reaching 6.2 percent of GDP in 2023."

Sen. Charles E. Grassley of Iowa, a senior Republican on the Senate Finance Committee, said in a written statement that the numbers show the need for changes in health care entitlement programs.

"This information from the nonpartisan Congressional Budget Office emphasizes the need for the president and Democratic leaders in Congress to come to the table to work on health care costs rather than simply attacking proposals made by House Republicans," he said. "By 2015, health care programs will cost taxpayers more than anyplace else the government spends money and will continue to do so through 2023."

The report also examined an alternative fiscal scenario that included blocking Medicare physician payment cuts, undoing automatic spending reductions and extending certain expiring tax provisions. "If lawmakers were to make those changes to current law, and if other changes in policies with offsetting effects on budget deficits were not enacted, deficits and debts would be significantly higher than the amounts shown in CBO's current baseline," the report said. "Debt held by the public would reach 87 percent of GDP by 2023, the largest share since 1947."

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