The rate of spending on Medicaid is expected to drop heading into fiscal 2012 for the first time in decades, but the growth rate of the government-run health insurance program will start rising again in 10 years, according to newly released data.
The Congressional Budget Office, or CBO, projects that Medicare spending will nearly double in the next decade, reaching about $1.06 trillion in fiscal 2022, compared with $565.3 billion in 2011. But the program's annual spending rate is expected to decline to 1.3 percent in 2012 from 7.6 percent the previous year.
The slower rate might not seem significant, but any reduction in Medicare spending is a notable achievement. The 47-year-old program provides health care coverage to about 48 million Americans, mainly those age 65 or older well as people with disabilities.
Of course, this comes at a substantial cost to taxpayers: Medicare, Medicaid (for low-income Americans) and the Children's Health Insurance Plan accounted for 21 percent of the federal budget in fiscal 2010, with Medicare consuming about two-thirds of that amount, according to the Center on Budget and Policy Priorities, a nonpartisan think tank.
Medicare spending took up 5.6 percent of U.S. gross domestic product in 2010, a figure that's expected to increase to 6.2 percent by 2080, according to the Centers for Medicare and Medicaid Services, a government research agency.
Future growth in spending per beneficiary for Medicare and Medicaid -- the federal government's major health care programs -- will be the most important determinant of long-term trends in federal spending, Peter Orzag, then-director of the CBO, testified to the Senate in 2008. Changing those programs in ways that reduce the growth of costs, which will be difficult, in part because of the complexity of health policy choices, is ultimately the nation's central long-term challenge in setting federal fiscal policy.
Boomers Contribute To Temporary Slowdown
The nonpartisan Center for Studying Health System Change estimates that Medicare spending per enrollee will grow at a slower rate than the overall U.S. economy over the next decade. The rate reduction isn't a fluke, according to a recent column by two of the group's researchers in the New England Journal of Medicine. They point to a handful of policy changes in the 2000s -- including the Medicare Improvements for Patients and Providers Act of 2008, which substantially cut back Medicare Advantage, an add-on provided by private insurers to the government's standard Medicare plan. That law paved the way for even larger payment-rate cuts as a result of the Affordable Care Act under President Barack Obama.
Among other things, the 2010 health care overhaul was designed to limit the cost of Medicare, mainly through a permanent slowing of growth of the program's payment rates for almost every category of medical provider besides physicians. The law, most of which has yet to be implemented, also spurred creation of the Independent Payment Advisory Board, which is tasked with lowering Medicare costs without sacrificing coverage or quality.
While policy changes are a factor in slowing Medicare's annual spending rate, a major force behind the trend is the influx of a relatively youthful, healthy baby boomer generation.
It's what we call the 'young elderly,' said Alwyn Cassil, of the Center for Studying Health System Change. These folks are going to be younger and healthier, which will temporarily drive spending down.
A baby boomer who reaches 65, Medicare's minimum age of eligibility, is a breed apart from those who qualified for the program upon its introduction in 1965. Americans born in 1900 had an average life expectancy of 49.2 years, according to the Congressional Research Institute. Baby boomers, whose lives have seen huge advances in medical science and lifestyle-driven health improvements, for the most part won't require the same level of medical care at age 65 that previous generations did. Medicare costs, however, are projected to increase as the demographic continues to age.
Still, baby boomers may eventually overwhelm the program's resources. Medicare enrollment is expected to hit 80 million by 2030, when the rate of support is projected to decline to 2.4 taxpaying workers per enrollee from the current 3.7 workers -- a trend that poses a major challenge to the program's sustainability.
We need to offer significant payment reform and change the way care is delivered, which will lead to a long-term impact on cost control, ideally without sacrifice, but instead with improved quality, Cassil said.
Republicans who initially opposed the creation of Medicare -- such as Ronald Reagan and George H.W. Bush -- warned that the government program would be a first step toward socialism. But Medicare has been credited with dramatically increasing access to health care for elderly Americans while reducing poverty rates among this population.
In 1964, the year before Medicare was established, only half of senior citizens in the United States had health insurance, according to National Health Statistics Reports, while about 30 percent of the nation's elderly lived in poverty.
Today, almost all elderly Americans have access to health care services through Medicare. Experts say the removal of that financial burden contributed directly to the declining poverty rate among this demographic group in the latter half of the 20th century. The 2010 U.S. Census reported that just 9 percent of Americans over age 65 live in poverty.
Lawmakers in both parties have taken steps they claim will preserve a program that clearly benefits the elderly, one of the country's biggest voting blocs.
Republicans in the House of Representatives proposed a 2012 budget that would have ended Medicare as it now exists and replaced it with a voucher-like premium support system that included raising the age of eligibility for coverage. The plan ultimately died in the Senate.
Supporters of the Republican proposal argued that the plan to have enrollees use government subsidies toward the purchase of private insurance would have forced down costs as a result of competition in the marketplace. However, the CBO found that the change would have instead increased costs. The agency predicted that under the Republican plan, a typical 65-year-old would go from paying 35 percent of his own health care costs to covering 68 percent by 2030.
Last December, the chairman of the House Budget Committee, Republican Rep. Paul Ryan of Wisconsin, and Sen. Ron Wyden, an Oregon Democrat, proposed a bipartisan reform plan that would maintain traditional Medicare while also offering Medicare-approved private insurance options as well.
More recently, Republican Sens. Richard Burr of North Carolina and Tom Coburn of Oklahoma introduced a plan aimed at reducing Medicare spending by $300 billion to $1 trillion in the next decade. This would be done, the lawmakers say, by requiring the existing program to compete with private plans, raising the eligibility age to 67 for those born after 1959 and increasing premiums by 3 percent of total Medicare costs each year until a 9 percent adjustment is reached by 2016.
However, the extra costs would be borne by people who earn more than $85,000 a year. They would be affected by an increased cap on out-of-pocket costs, while millionaires would have to pay the full premium costs of Medicare Part B (doctor visits, preventive care, outpatient services and lab tests) and Part D (prescription drugs) and be subject to higher deductibles.