Per Capita Medicare Spending Growth Slows

The HHS Assistant Secretary for Planning and Evaluation (ASPE) announced that Medicare spending per beneficiary grew more slowly than the gross domestic product (GDP) in fiscal year (FY) 2012. Although benefits have been added, the amount spent per beneficiary rose 0.4 percent, while the GDP grew 3.4 percent in FY 2012. HHS expects that Medicare spending per beneficiary will continue to grow at no more than the rate of GDP growth through FY 2022.

This slowed growth in per capita spending continued for a third consecutive year and constitutes an important shift. Medicare spending per beneficiary grew at an average rate of GDP growth + 2.7 percent per year from 1970 until FY 2010, according to HHS. The agency noted that aggregate Medicare spending will continue to rise because the beneficiary population is expected to grow by 3 percent per year until 2035 as the “baby boomer” generation reaches age 65.

The agency attributes much of the slowdown to the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), which curbed growth in payments to hospitals and Medicare Advantage plans and fostered the shift toward value-based purchasing. The agency highlighted projections of the Office of the Actuary and the Congressional Budget Office that support this view. Although demand for services fell somewhat during the recession, HHS believes that the low cost sharing required of beneficiaries with supplemental insurance would have softened the effects of the recession on Medicare beneficiaries’ use of services. The influx of baby boomers that began in 2011 is gradually reducing the average age of Medicare beneficiaries, but not enough to account for the entire slowdown in growth.

A story by Kaiser Health News suggests another possible reason that Medicare spending is growing more slowly. Consumer spending on prescription drugs has fallen because new generics are replacing brand name drugs as patents expire. As a result, consumers’ share of total health spending is not as high as expected. Perhaps these falling prices also affect Medicare payments for Part D beneficiaries.