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Did You Know? Facts & Figures on Medicare Spending

Medicare spending continues to rise. Over the past few years, we have seen a notable reduction in the growth of Medicare spending compared to prior decades, both overall and per beneficiary, according to a new Kaiser Family Foundation report. The report includes the most recent historical and projected Medicare spending data from the CMS Office of the Actuary (OACT), the 2016 annual report of the Boards of Medicare Trustees and the 2016 Medicare baseline and projections from the Congressional Budget Office (CBO). Becker’s Hospital Review provides 7 Quick Facts about Medicare Spending adapted from KFF’s report.

7 Quick Facts about Medicare Spending:

Here are seven quick facts on Medicare spending, as stated in the report:

  1. In 2015, Medicare spending accounted for 15 percent of the federal budget [Graph: Fig 1]
  1. Medicare plays a major role in the health care system, accounting for 20% of total national health spending in 2014, 29% of spending on retail sales of prescription drugs, 26% of spending on hospital care, and 23% of spending on physician services.
  1. In 2015, Medicare benefit payments totaled $632 billion. Of the $632 billion, 23 percent was for hospital inpatient services, 12 percent for the Part D drug benefit and 11 percent for physician services. Twenty-seven percent of benefit spending went toward Medicare Advantage private health plans covering all Part A and Part B benefits. [Graph: Fig 2]
  1. Medicare spending growth has slowed in recent years compared to previous decades, both overall and per beneficiary, according to the report. Average annual growth in total Medicare spending was 4.4 percent between 2010 and 2015, compared to 9 percent between 2000 and 2010. That’s despite faster growth in enrollment since 2011 with baby boomers reaching Medicare eligibility age. Additionally, average annual growth in spending per beneficiary averaged just 1.4 percent between 2010 and 2015, compared to 7.4 percent between 2000 and 2010. [Graph: Fig 3]
  1. Slower Medicare spending growth in recent years is attributed in part to policy changes that took effect as part of the Affordable Care Act (ACA) and the Budget Control Act of 2011, according to the report. For instance, the ACA included reductions in Medicare payments to plans and providers, while the BCA lowered Medicare spending through sequestration that reduced payments to providers and plans by 2 percent beginning in 2013, according to the report. Slower Medicare spending growth is also attributed slower growth in prescription drug spending and a reduction in inpatient hospital readmissions, among others.
  1. In the last 25 years, Medicare spending has grown at a slightly slower rate than private health insurance spending on a per enrollee basis, the report notes. Between 1989 and 2014, Medicare spending per enrollee grew 5.5 percent per year on average, somewhat slower than the 6.3 percent average annual growth rate in private insurance spending per enrollee over that time period. Between 2000 and 2010, per enrollee spending growth rates were comparable for Medicare and private insurance. Between 2010 and 2015, however, Medicare per capita spending grew at a slower pace than private insurance spending, increasing at an average annual rate of just 1.4 percent over this time period, while average annual growth in private health insurance spending per capita increased at just over twice that rate (3 percent).
  1. Looking forward, net Medicare spending, meaning mandatory Medicare spending minus income from premiums and other offsetting receipts, is projected to increase from $591 billion in 2016 to $1.1 trillion in 2026, according to the Congressional Budget Office. The CBO projects total Medicare spending to increase from $695 billion to $1.3 trillion over this time period. [Graph: Fig 4]

 

KFF’s Long-Term Spending Projections

KFF states in their report that over the longer term (beyond the next 10 years), both the CBO and the OACT expect Medicare spending to rise more rapidly relative to GDP due to a number of factors, including the aging of the population and faster growth in health care costs than growth in the economy on a per capita basis.

Over the next 30 years, CBO predicts that “excess” health care cost growth will account for a somewhat larger share of projected growth in spending on the nation’s major health care programs (Medicare, Medicaid, and subsidies for ACA Marketplace coverage) than the aging of the population. The CBO says this is as a result of new medical technology and rising personal income as the driving factors behind projections of rising health care costs. However, KFF notes, the CBO notes that the projected rate of excess cost growth in Medicare spending for the coming years is lower than the historical rate of growth, based on the expectation that use of Medicare services will continue to grow slowly and on the smaller provider payment updates called for under current law relative to past payment increases.

 

Sources: Gooch, Kelly, “7 Quick Facts about Medicare Spending,” Becker’s Hospital Review, July 21, 2016; Cubanski, Juliette; Neuman, Tricia, “The Facts on Medicare Spending and Financing,” Kaiser Family Foundation, July 20, 2016