CBO Reduces Estimate of Increase in Medicare Spending by $69 Billion Over 10 Years

The Congressional Budget Office (CBO) has reduced its projected spending on Medicare by $69 billion over the next ten years from its estimate made in August 2011.  In spite of this reduction, CBO is projecting that spending on Medicare will nearly double during that time period, according to the Budget and Economic Outlook: Fiscal Years 2012 to 2022, issued by the CBO in January of 2012.

This increase, however, is not out-of-line with previous increases in Medicare spending over a 10 year period. From 2002 to 2012 spending on Medicare increased by 120 percent.  From 1992 to 2002 Medicare spending increased by 96 percent. And, from 1982 to 1992 Medicare spending increased 163 percent.

Of the additional $480 billion spent during the 2012 – 2022 time period, CBO estimates that $29 billion will be spent on the increased cost of goods and services (including the costs of both labor and nonlabor cost) during that time period.  That is not the expected costs of all costs and services during that time period, just the additional amount that will needed to be spent as a result of the increase costs of those goods and services.

The largest single driver in the growth of Medicare spending is the increase in the number of beneficiaries covered under Medicare during the next ten years.  Currently Medicare covers about 48 million individuals.  That number is expected to increase by 3 percent each year until 2022.  In 2022, CBO estimates that Medicare will cover 66 million individuals.

Even though total expenditures for Medicare are expected to double during the next ten years, CBO reduced its estimate of the increase of these costs by $69 billion or a roughly a 12.5 percent reduction.  CBO accredited this reduction in cost to having better knowledge of the actual amount spent in 2011 and a better analysis of the uses of health care services.

CBO estimates that the Hospital Insurance (HI) Trust Fund, which pays for care provided at hospitals and post-acute care services will have a zero balance in 2022.  In 2012, the balance in this fund was $246 billion.  Balances in this fund are projected to drop quickly in the coming years with a balance of

  • $221 billion at the end of 2012;
  • $185 billion at the end of 2013;
  • $148 billion at the end of 2014;
  • $120 billion at the end of 2015;
  • $93 billion at the end of 2016;
  • $73 billion at the end of 2017;
  • $59 billion at the end of 2018;
  • $42 billion at the end of 2019;
  • $25 billion at the end of 2020; and
  • $6 billion at the end of 2021.

The trust fund that pays for Part B services will have its end-of-year balances grow during this time period from $70 billion to $175 billion.  This trust fund is funded by general revenues and monthly premiums.