Is Medicare a Budget Buster? Not Anymore

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A slower-than-expected growth in Medicare spending, and health care spending in general, is good news for the federal budget.

You often hear about the potential for Medicare spending to skyrocket now that a growing number of baby boomers are retiring. But the doom-and-gloom scenario for Medicare isn’t nearly as bad as anticipated.

According to The New York Times, the most recent report from the Congressional Budget Office revealed a reduced estimate for Medicare spending in upcoming years.

So just how big is the anticipated savings in Medicare spending? If you compare the new estimate for Medicare expenditures in 2019 ($11,300 per person) with the spending anticipated for 2019 four years ago ($12,700 per person), the U.S. can expect to pocket about $95 billion in Medicare spending savings. Wow.

“That sum is greater than the government is expected to spend that year on unemployment insurance, welfare and Amtrak — combined,” the Times said.

Any savings in Medicare spending is good news for the federal budget. According to the Times:

In more concrete terms, the reduced estimates mean that the federal government’s long-term budget deficit is considerably less severe than commonly thought just a few years ago. The country still faces a projected deficit in future decades, thanks mostly to the retirement of the baby boomers and the high cost of medical care, but it is not likely to require the level of fiscal pain that many assumed several years ago.

Across the board, health care spending is expected to grow at a steady – but slow – rate, which is in marked contrast to what the U.S. has experienced in the past. According to Vox, health care costs grew about 7.2 percent per year from 1990 to 2008, then slowed considerably during the Great Recession. Vox said:

Going forward, Medicare’s actuaries think that health care growth will rebound a bit — but not get anywhere near the really rapid growth of the 1990s and early 2000s. They expect that, for 2013 through 2023, health care costs will grow by an average rate of 5.7 percent each year — 1.5 percentage points slower than what we’d become accustomed to in just the last decade.

So, why are health care costs growing more slowly? Vox said there are a few good theories:

  • Slower economic growth. In the 1990s, health care and the economy grew at a similar, quick pace. Post-recession, things have changed. “Part of the slowdown in health spending growth might just be the fact that everything else is growing more slowly too,” Vox said.
  • Holding down prices. It seems that insurance carriers are becoming more savvy when negotiating payment rates with medical providers, holding down health care pricing.
  • Fewer doctor visits. Medicare is spending less per person than it did just two years ago. “This doesn’t happen much in health care: not just slower growth, but the actual dollar amount spent on a given type of care dropping,” Vox noted.
  • Out-of-pocket costs up. Patients are paying for a bigger portion of their medical bills than in the past. “Previous research shows that when patients have to pay more for health care, they use less of it,” Vox said. Whether this is a good or bad trend is up for debate.

What do you think of the anticipated savings in Medicare spending? Share your comments below or on our Facebook page.

Stacy Johnson

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