CBO Says Medicare Spending Growth Slower Than Expected

Amid its grim projections for the economy overall, the Congressional Budget Office on Wednesday said that Medicare spending growth is slowing, although the program will take up a larger share of the economy in a decade than it does now.

In an update to its January report on the nation’s budget and economic outlook, CBO said that outlays for Medicare will total 3.7 percent of the gross domestic product in 2013, rising to 4.3 percent of GDP in 2022, as enrollment in the program increases.

But the report also noted that for the third year in a row, CBO expects the growth in Medicare spending in 2012 to be “substantially slower” than anticipated earlier in the year.

CBO Director Doug Elmendorf said at a press conference that the slower growth in Medicare is consistent with slower health care cost growth throughout the economy, which many analysts have observed. But he said it’s still unclear why the slowdown is happening.

“Presumably, the weak state of the economy is a factor, but given the magnitude of the slowdown in national health spending and the timing of that slowdown, which seems to have started before the recession, we and most analysts think there are probably structural factors at work as well,” he said. Those structural factors could include slower growth of spending on prescription drugs, changes in the health care delivery and payment system, and higher out-of-pocket spending for consumers, according to Elmendorf.

The report also looked at Medicaid. Federal outlays for the program are expected to total 1.7 percent of GDP next year and 2.4 percent of GDP in 2022 as the program expands under the 2010 health law. In comparison to its March projections though, the CBO said Medicaid spending would decrease by $325 billion, or 7 percent, from 2013 to 2022. The bulk of that reduction is due to the Supreme Court’s ruling on the health law, which makes optional an expansion of the program that the law essentially required all states to put in place.

Overall, CBO said that the economy could return to a recession in 2013 if lawmakers do not avoid a set of tax increases and spending reductions that will take effect in January, a deadline often referred to as the “fiscal cliff.”

Physicians face a 27 percent cut in their Medicare payments next year unless lawmakers forestall the hit. Congress historically has acted to avoid such cuts, which are the result of a formula known as the sustainable growth rate. CBO said that holding Medicare physician payment rates at current levels next year would cost $10 billion, and a total of $245 billion if they were left unchanged through 2022.

But even if Congress averts the fiscal cliff and a recession, the economy cannot sustain the high debt levels that would result in the long term if current tax and spending levels are left unchanged, according to Elmendorf.

“The key issue facing policymakers is not whether to reduce budget deficits relative to those that would occur under current policies. The question is when; the question is how,” he said.