Medicare Spending Growth Slows

According to the Congressional Budget Office (CBO), the rate of growth in Medicare spending slowed 3% in 2012, the slowest rate since 2000. And, this slow growth rate can be expected to continue at least through the end of 2013.

Each percentage growth in the Medicare program represents approximately $5 Billion in additional expenditures. This means that each percentage point of lower growth in the Medicare program represents a long-term reduction in Medicare spending of $5 Billion less per year or $50 Billion less over 10 years.

Slower than expected growth in the Medicare program will also have a positive effect on the deficit this year. According to CBO, the 2013 deficit is projected to end up being approximately $845 Billion, whereas the 2012 deficit was approximately $1 Trillion. Although the deficit remains dramatically higher than most economists would consider healthy, the fact that the deficit appears to be on a downward trend is seen as good news.

It does not appear that the slower spending growth for Medicare is the result of any specific change in federal health policy, but rather it is a reflection of the overall slow growth in the economy for the past several years.

Break Away from the Static

While not completely discounting payment changes to encourage providers to be more efficient, the CBO analysts suggest that the slower than expected growth is largely due to the decreased demand for healthcare services brought about by declining income.

Despite this “good news” CBO projects that long-term, Medicare spending will double in the next ten years from approximately $550 Billion in 2012 to more than $1 Trillion in 2023.

ADVOCATE will provide more information as it becomes available.

Best regards,
Kirk Reinitz, CPA