New CBO Report Projects Long-Term Decrease in Medicare Spending Growth

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By Nathaniel Weixel

Aug. 27 — The growth in Medicare spending in fiscal year 2014 has slowed considerably compared with past years, but overall spending on health-care programs continues to rise, according to an Aug. 27 report from the Congressional Budget Office.

The CBO lowered its projection of spending for Medicare in FY 2014 by $9 billion, and by a total of $11 billion over 10 years.

The report said previous estimates about the impact of provisions of the Affordable Care Act related to health insurance coverage haven't changed substantially for 2014 or for the next decade. Since its report in April, the CBO said the information available has been too limited to forecast any significant changes.

In the current fiscal year, 2014 (which ends Sept. 30), net spending for Medicare will rise only 2 percent, slower than what the agency previously predicted, but spending for Medicaid will rise 15 percent, primarily because of states expanding Medicaid eligibility under the ACA.

The CBO previously updated its budget projections in April.

‘Doc Fix.'

For Medicare, the spending predictions stem from lower-than-expected spending for Part A (Hospital Insurance) services and Part D (outpatient prescription drugs). The 2 percent growth represents an overall decrease in the cost per beneficiary, “a striking phenomenon,” CBO Director Douglas Elmendorf said during an Aug. 27 press briefing.

Payment rates for Medicare will be slightly lower than what the agency forecast in its last budget projection in April because of economic changes, the report said, meaning projected outlays will be reduced by $49 billion over 10 years.

The CBO said its estimate of Medicare spending assumes the current sustainable growth rate (SGR) formula will remain in effect. Each year, the SGR formula calls for deep cuts in Medicare physician pay rates that are routinely canceled by Congress with what has come to be known as a “doc fix.”

Holding payment rates through 2024 at current levels and thus avoiding a cut from the SGR would raise spending for Medicare by $131 billion (or about 2 percent) between 2015 and 2024, the report said. The overall effect of the policy on Medicare (and on the deficit) 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 said.

Medicaid Growth

In contrast to Medicare, Medicaid spending is projected to increase rapidly in the coming years, the CBO said.

Medicaid spending is projected to grow by $40 billion (or 15 percent) in FY 2014, the report said. As a percentage of gross domestic product, Medicaid spending is expected to rise from 1.8 percent in 2014 to 2.1 percent in 2024, the CBO said.

The report gave three reasons for the spending increase. More states are expected to expand Medicaid coverage under the provisions of the ACA; more people in states that have already expanded such coverage are expected to enroll in Medicaid; and federal spending for Medicaid benefits per person is expected to increase over time.

Elmendorf said the spending growth is expected to level out once Medicaid expansion has been phased in.

Total Health Spending

While Medicare spending is slowing, annual net outlays for all the government's major health-care programs are projected to rise by more than 85 percent in 10 years, the report said, and about 9 percent (or $67 billion) in 2014, the CBO said.

“All told, spending on the government's major health care programs, net of offsetting receipts, increases from 4.9 percent of GDP in 2014 to 5.9 percent of GDP in 2024,” the report said.

To contact the reporter on this story: Nathaniel Weixel in Washington at

To contact the editor responsible for this story: Brian Broderick at

The report is at