Edward Conard

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  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
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Upside of Inequality Oxford Unintended Consequences

AI Summary. Average annual real per capita spending growth in the US Medicare program fell from 5.2% in 1987-1996 to 2.7% in 1996-2005 and 0.7% in 2006-2022, a slowdown most plausibly attributed to congressionally mandated payment reforms and cuts. With enrollment projected to rise from 66m to 83m by 2040, aggregate costs are expected to grow rapidly.

James Capretta American Enterprise Institute
Date Posted:

James Capretta @AEIecon notes while the increase in per-capita Medicare spending has slowed, there are reasons for pessimism going forward, as congressionally mandated cuts in Medicare reimbursement rates leave them 40-60% below private rates.

Has slowing per-person Medicare spending growth solved the program's cost problem?

Core argument: Medicare's average annual real per capita spending growth fell from 5.2% in 1987–1996 to 2.7% in 1996–2005 and 0.7% in 2006–2022, according to National Health Expenditure data.

According to NHE data, between 1987 and 1996, the average annual real per capita growth rate within Medicare was 5.2%. From 1996 to 2005, the rate was cut roughly in half, to 2.7%. From 2006 to 2022, it dropped again, to 0.7%. Why did the downward trend begin nearly three decades ago and not in 2011? While there are likely many explanations, the most obvious is the steady implementation of congressionally mandated payment reforms (and cuts). The reasons for the current slowdown may not be sustainable: For example, payments per service under current law are not expected to keep up with inflation and therefore may not be sufficient to ensure full access to care for the program’s beneficiaries. By 2040, Medicare’s payments for physician services and hospital care are expected to be just 40% and 55-60%, respectively, of the average amounts paid by commercial insurers. With aging baby boomers pushing enrollment up from 66 million today to 83 million by 2040, aggregate costs will grow very rapidly over the coming three decades.

Takeaways by Macro Roundup® AI

  1. Medicare's average annual real per capita spending growth fell from 5.2% in 1987–1996 to 2.7% in 1996–2005 and 0.7% in 2006–2022, according to National Health Expenditure data.
  2. The most obvious explanation for Medicare's spending slowdown, which began nearly three decades ago rather than in 2011, is the steady implementation of congressionally mandated payment reforms and cuts.
  3. By 2040, Medicare payments for physician services and hospital care are expected to be 40% and 55–60%, respectively, of average commercial insurer payments, while enrollment rises from 66 million to 83 million.

Related Articles:

  • A Huge Threat to the U.S. Budget Has Receded. And No One Is Sure Why — Spending per Medicare beneficiary in the US has nearly leveled off over more than a decade, though total enrollment has grown as baby boomers age. Policy changes including cuts to hospital and private plan payments explain some savings, but the Congressional Budget Office attributes most of its lowered forecasts to "technical adjustments" in public health and medical practice.
  • Why Medicare and Social Security Are Sustainable — Growth in U.S. health spending above GDP growth has slowed considerably, and the Congressional Budget Office projects social insurance spending will eventually rise by about 5 percentage points of GDP, half of that from assumed health cost increases. The author argues better incentives for medically effective care could hold cost growth well below those projections.
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