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With the potential of a federal government shutdown looming, it’s easy to be cynical about the massive federal budget, which grows every year.
But there is a bit of good news about federal spending: The growth in Medicare spending has significantly slowed down.
Medicare, the health insurance program for seniors, is the second largest expenditure in the federal budget, accounting for about 12 percent of federal spending. For years, spending per enrollee had been increasing. That growth, which analysts predicted would continue well into the future, has slowed dramatically.
Per person spending in Medicare has been on the increase for decades, a trend that was projected to continue, to reach more than $22,000 per enrollee annually. That’s not what happened, according to a recent New York Times analysis. Instead, actual spending per Medicare enrollee this year is $12,459.
To be clear, overall Medicare spending will continue to rise as Americans continue to age and the population eligible for Medicare continues to grow.
But the slowdown in spending per enrollee means that Medicare spending has been nearly $4 trillion less than projected since 2011, according to The Times. That is a huge reduction, with the potential for money that was destined for Medicare to be directed elsewhere.
“Without a doubt, this is the most important thing that has happened to the federal budget in the last 20 years,” David Cutler, a professor of health policy and medicine at Harvard, who helped the Obama White House develop the Affordable Care Act, told the newspaper.
Cutler and other researchers documented the spending slowdown in a 2019 paper. They found that the growth in Medicare spending was cut by more than two-thirds beginning in 2005.
No one is entirely sure why. One potential reason is that many older Americans are in better health. For example, there have been declines in heart attacks and strokes among older Americans, in part because of advances in medications that have become less expensive and more widely used. The research by Cutler also found a slowdown in spending on dementia, kidney and infectious diseases
Not all the potential reasons are positive. Although only a recent event, COVID impacted Medicare spending. Sadly, hundreds of thousands of Medicare recipients died with COVID during the pandemic. Because many of these older Americans had underlying chronic illnesses, their deaths will have an impact on lowering Medicare expenditures for several years, the Medicare trustees reported earlier this year.
Changes in the laws around Medicare also have had an impact. For example, Medicare payments to hospitals and providers were reduced as part of the Affordable Care Act and budget negotiations. While these changes prompted doctors and medical facilities to think about controlling costs, it also meant that some expensive therapies may be harder to get, The Times reported.
Still, this unexpected — and large — cost reduction has significant policy implications. For example, it means that the deficit is smaller than it would have been if Medicare spending had grown as expected.
The reduction in expected costs also outstrips many other efforts to reduce spending and the national debt. For example, raising the eligibility age for Social Security wouldn’t come close.
A recently enacted plan to have Medicare negotiate drug prices is expected to generate another $100 billion in savings over the next decade.
This new analysis doesn’t mean that changes aren’t needed in entitlement spending, such as Medicare and Social Security. But it shows that changes in policy and individual behavior can affect one of our federal government’s biggest programs.
