Why is Medicare spending slowing?

Medicare is spending about $1,000 less per beneficiary than it was expected to just a few years ago, and no one is quite sure why-or whether the slowdown will last.

A blog posting on the Kaiser Family Foundation’s website compares the Congressional Budget Office’s (CBO) 2010 baseline projection of what Medicare spending would be in 2014 with the CBO’s current baseline estimates for 2014. The authors find a difference of nearly $33 billion ($644.8 billion versus $612 billion), or $1,048 per beneficiary.

Looking ahead a few years, the differences are even greater. In 2010, the CBO’s baseline projection for 2019 was $869.3 billion, whereas the current projection for 2019 is $778 billion, a difference of $91.3 billion, or $2,369 per beneficiary.

“Healthcare observers are still scratching their heads trying to explain why Medicare spending is growing so slowly,” write Tricia Neuman, Ph.D., and Juliette Cubanski, Ph.D., the post’s authors, adding, “the consecutive year-to-year reductions in projected Medicare spending are unprecedented.”

The 2010 projection was developed after passage of the Affordable Care Act (ACA), and Neuman and Cubanski note that the CBO’s 2010 and subsequent spending projections already include many of the legislation’s cost-saving provisions, such as reductions in Medicare Advantage payments. Similarly, CBO projections after 2013 include the 2% reduction in provider payments under sequestrations, but even with those the CBO has continued to lower its Medicare spending projections.

The authors speculate that projections of lower spending may be due to “providers tightening their belts and looking to deliver care more efficiently in response to financial incentives included in the ACA.” As evidence, they point to the fact that hospital readmission rates-a significant driver of healthcare costs-dropped by 130,000 from January of 2012 to August of 2013.

Other possible factors, they say, include the growing use of data and other analytic tools to track utilization and spending, and that several popular and expensive brand-name drugs have gone off patent recently, which helps to slow Medicare drug spending.

Looking ahead, Neuman and Cubanski cite Medicare’s actuaries expectations that spending will start rising more rapidly in the next few years due to:

• faster enrollment growth as more baby-boomers become eligible for the program,

• increased service use due to greater severity of illness among beneficiaries, and

• faster growth in prices which are not fully offset by payment reductions that are part of the ACA

“These challenges will, no doubt, be the subject of some attention when the Medicare Trustees release their 2014 report in the near future,” the authors say.