CBO pre­dicts slower growth in Medi­care, Med­i­caid spend­ing

CBO sees de­cel­er­at­ing health­care spend­ing

Modern Healthcare - - NEWS - Me­lanie Evans

Fed­eral health­care spend­ing on Medi­care and Med­i­caid will grow slower than pre­vi­ously be­lieved over the next decade, mak­ing it a lot cheaper to re­store physi­cian pay to cur­rent lev­els.

But health­care still will grow sub­stan­tially faster than the rest of the econ­omy, ac­cord­ing to the lat­est pro­jec­tions from the Con­gres­sional Bud­get Of­fice, which is cer­tain to keep the is­sue of sky­rock­et­ing med­i­cal costs a ma­jor con­cern for Washington pol­i­cy­mak­ers.

An in­de­pen­dent anal­y­sis by the Eco­nomic Pol­icy In­sti­tute showed that fed­eral spend­ing on health­care will grow just 3 per­cent­age points per year faster than gross domestic prod­uct, on av­er­age, be­tween 2012 and 2022, down from the 3.5 per­cent­age points faster pro­jected last Au­gust.

The health­care slow­down will only be tem­po­rary, ac­cord­ing to the CBO anal­y­sis. A re­ces­sion-in­duced falloff in de­mand for hos­pi­tals, drugs, physi­cians and other ser­vices will re­verse it­self in the lat­ter half of this decade. Still, to­tal Medi­care spend­ing through 2022 will be $137 bil­lion less than the agency’s econ­o­mists pro­jected six months ago.

The best news for pol­i­cy­mak­ers in the CBO pro­jec­tions was its es­ti­mate that the cost of restor­ing physi­cian pay to cur­rent lev­els— the law man­dates an­nual cuts in pay that cu­mu­la­tively would re­sult in a 25% pay cut— will cost $138 bil­lion over the next 10 years. That’s down 40% from the Au­gust 2012 pro­jec­tion of $245 bil­lion.

“The ef­fect on Medi­care (and on the deficit) of mak­ing such a change would de­pend on whether law­mak­ers off­set the ef­fects of the change, as they of­ten have done in the past, with other changes to re­duce deficits,” the CBO noted. Most re­cently, Congress cut pay­ments to hos­pi­tals and dial­y­sis ser­vices to off­set the $30 bil­lion cost

of de­lay­ing the doc­tor pay cut by one year.

Paul Gins­burg, an econ­o­mist and pres­i­dent of the Cen­ter for Study­ing Health Sys­tem Change, said the less costly pro­jec­tion could make it eas­ier for Congress to agree on a per­ma­nent “doc fix.”

Medi­care spend­ing in­creased 3% last year, the CBO said, and will in­crease 4% this year. But the slow­down won’t last, ac­cord­ing to the pro­jec­tions, which show a re­bound in Medi­care spend­ing growth to 7% per year, of which just 3% can be at­trib­uted to new en­rollees, said John Ho­la­han, out­go­ing di­rec­tor of the Ur­ban In­sti­tute Health Pol­icy Cen­ter, who re­viewed the bud­get anal­y­sis cal­cu­la­tions.

Jonathan Skin­ner, a health econ­o­mist and Dart­mouth Col­lege pro­fes­sor, called the pro­jected growth still “pretty im­pres­sive.”

Ris­ing spend­ing on Medi­care and Med­i­caid and the cost of new health in­surance sub­si­dies un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act are among the pri­mary rea­sons for es­ca­lat­ing deficits later in the decade, the CBO said.

Whether Medi­care spend­ing re­turns to its ro­bust growth path de­pends on what prompted the de­cline in re­cent years, which still isn’t clear to econ­o­mists, Ho­la­han said. The eco­nomic down­turn may have prompted Medi­care en­rollees to drop or forego sup­ple­men­tal in­surance or scale back spend­ing on ser­vices with co-pays, he said.

An­other pos­si­bil­ity is that hospi­tal and physi­cian ef­forts to im­prove ef­fi­ciency may be a ma­jor con­trib­u­tor to the slow­down. If that turns out to be the case, the slower spend­ing may be­come an en­dur­ing phe­nom­e­non.

Med­i­caid spend­ing dur­ing the same pe­riod is also pro­jected to be lower than be­lieved last Au­gust, by about $236 bil­lion, largely be­cause of an es­ti­mated 1 mil­lion fewer en­rollees dur­ing the next decade. The CBO cred­ited some of the drop in en­roll­ment to bet­ter fore­cast­ing meth­ods and higher pro­jec­tions for the num­ber of those pri­vately in­sured by an em­ployer.

Na­tion­ally, health spend­ing slowed sharply with the re­ces­sion and con­tin­ued through 2011 to grow at his­tor­i­cally low rates—3.9% per year since 2009—ac­cord­ing to the most re­cent CMS es­ti­mate, which was re­leased in Jan­uary.

Medi­care spend­ing growth de­cel­er­ated in 2010 to 4.3%, ac­cord­ing to the CMS, but picked up again in 2011 and grew 6.2%. En­roll­ment growth held steady at 2.5% each year, but spend­ing per en­rollee grew 1.8% in 2010 and ac­cel­er­ated in 2011, in­creas­ing 3.6%. Pro­jec­tions for 2012 and be­yond are not yet avail­able.

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