Medicare Spending Growth Slows

Rick Kronick and Rosa Po report that per capita Medicare spending levels have slowed in recent years.

Expenditures per Medicare beneficiary increased by only 0.4% in fiscal year 2012, substantially below the 3.4% increase in per capita GDP (Exhibit 1). The very slow growth in Medicare spending in fiscal year 2012 follows slow growth in 2010 and 2011. In 2010, spending grew at only 1.8% per beneficiary, and in 2011 at 3.6 %. Over the three year period from 2010-2012, Medicare spending per beneficiary grew an average of 1.9% annually, or more than 1 percentage point more slowly than the average annual growth of 3.2% in per capita GDP (that is, at GDP-1.3).


What is the cause of the slowdown? Kronick and Po attribute much of the slowing growth rates to the Affordable Care Act. In fact, they claims that it is “the primary cause of the projections of continued slow growth over the next decade.”

Other factors, however, are affecting the average Medicare spending rates. As baby boomers reach the age of Medicare eligibility, the average age of Medicare beneficiaries will decline somewhat over the coming decade. The authors estimate that boomer aging “…will cause expenditures per beneficiary to grow by approximately 0.2% per year more slowly over the next decade then they would if the age structure were constant.” The following picture shows that CMS’s Office of the Actuary (OACT) projects that excess cost growth will only a small effect of Medicare excess cost growth rates over the next 25 years.


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