Unbiased Analysis of Today's Healthcare Issues

Medicare spending surges again

Written By: Jason Shafrin - Aug• 31•15

The August update to the Congressional Budget Office’s 10-year economic outlook is fairly rosy.  The deficit will ‘only’ be $426 billion, which is $59 billion less than the deficit last year and would represent 2.4% of GDP, the smallest deficit as a share of GDP since 2007.  Nevertheless, CBO still products overall US debt to rise as a share of GDP by 2025.

In health care, the news is more worrisome, even in the short-run.

In 2015, spending for Medicare (net of premiums and other offsetting receipts) will rise by $35 billion, or about 7 percent, CBO expects—the fastest rate of growth recorded for the program since 2009 (after adjustments are made for shifts in the timing of certain payments). Part of that increase reflects the fact that certain provisions of the ACA that reduced the rate of growth in Medicare spending have been implemented already. Those provisions will continue to constrain Medicare spending, but to roughly the same extent each year, so they are no longer reducing its growth rate. In addition, the increase in 2015 reflects growth in the number or cost of services furnished to Medicare beneficiaries, although data are not yet available to show how much of that growth is attributable to changes in hospital admissions, physician visits, prescriptions of expensive new drugs, or other health care services.

The Medicare Access and CHIP Reauthorization Act of 2015 (P.L. 114-10) raised the rates Medicare pays to physicians and led the CBO to increase its projections of outlays by $159 billion for the 2016–2025 period.  However, this change is mostly just accounting tricks.  PL 114-10 ended the annual need for a “doc fix”; CBO’s alternative fiscal scenario already had assumed that the “doc fix” was a political reality.

In the long run, things aren’t much better with respect to Medicare spending due to an aging population:

Outlays for Medicare (adjusted for shifts in the timing of certain payments) remain near 3.0 percent of GDP through 2018 and then increase each year through 2025, when they total 3.7 percent.

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