CBO Projects Lower Medicare and Medicaid Costs

Mary Agnes Carey

August 28, 2014

Reduced costs for medical services and labor have trimmed the 10-year projected cost of Medicare and Medicaid by $89 billion, the Congressional Budget Office said Wednesday.

Medicare spending is projected to drop by $49 billion — or less than 1 percent — from 2015 and 2024, while Medicaid spending is expected to drop by $40 billion — or about 1 percent — over the next decade, CBO said in an update to its April forecast.

Despite the long-term projected drop, federal spending for major health care programs will jump this year by $67 billion — or about 9 percent —  the agency estimated.  The largest increase will be for Medicaid, which is projected to grow by $40 billion, or 15 percent. Most of this short-term increase is attributable to the Affordable Care Act, including its Medicaid expansion and the financial assistance to help people purchase health insurance.

More than half of the states and the District of Columbia have opted for the health law’s Medicaid expansion. Subsidies to help eligible individuals purchase health on the law’s online marketplaces, or exchanges, and related expenses (mostly grants to states to establish exchanges) would total $17 billion this year, according to CBO.

CBO and the Joint Committee on Taxation’s projections of outlays and revenues arising from the health law’s provisions related to health insurance coverage have not changed substantially since the spring for 2014 or over the 2015–2024 period, according to CBO.

CBO also said it expects Medicare outlays to increase this year by about $12 billion — or 2 percent — which is similar to the rate of growth in 2013 and below the growth in the number of Medicare beneficiaries.

A Medicare physician payment “fix” remains a relative bargain compared to the 2012 estimate from CBO. Holding Medicare physician payment increases to the current rate through 2024 would cost $131 billion, CBO found.  For years, lawmakers have struggled to replace the current Medicare physician payment formula, known as the sustainable growth rate or SGR, and have repeatedly passed legislation to avoid heavy scheduled cuts.

While the price of an SGR replacement has dropped in recent years — CBO estimated the 10-year cost at $316 billion in 2012 — and there’s bipartisan support to replace the formula, Congress has yet to agree on how to pay for a replacement. Many policy analysts and lawmakers have recommended that Medicare physician payments be based on the quality of care provided, rather than the volume of services.


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