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Why Has Medicare Spending Growth Slowed?

By August 29, 2013Commentary

One of the few things that has helped the federal budget mess in recent years is lower than expected Medicare spending.  A working paper from the Congressional Budget Office tries to understand why the slowdown occurred and whether it might persist.   (CBO Report)   Between 1980 and 2005 spending rose at about 8% on a per beneficiary basis in traditional Medicare.  Between 2007 and 2012 that rate fell to 3%.  After adjusting for inflation there is about a 3.2% difference in growth rates in the two time periods.  The authors looked at demographic factors, reimbursement and other program changes and economic factors.  The decrease in trend occurred across all major spending categories–inpatient, outpatient hospital, physician services, lab, etc; although at different rates.  The slowdown also appeared to exist in all geographic regions and for both high and low-cost beneficiaries.  Although the severe recession may have affected spending in the commercial population it does not appear to have significantly affected demand in the Medicare program.  As the boomer population begins to age into Medicare, they tend to be healthier and have lower costs than the older existing Medicare population, and therefore that influx lowers average spending, but that only accounted for .3% of the gap.  Beneficiaries only enrolling in Part A accounted for another .3%.  About 2.4% of the spending trend difference was not clearly linked to a certain factor.  The authors suspect something was at work to change provider treatment patterns.  Because they had difficulty making a definitive cause attribution, the authors were reluctant to predict whether the slowdown would continue, but suggested that since it was not due to general economic factors, it likely could.

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