CBO Notes Decline in Medicare and Medicaid Spending and Adjusts Projections

Despite what history might indicate, spending on Medicare and Medicaid has actually been on the decline, notes Congressional Budget Office (CBO) director Doug Elmendorf in his recent blog post entitled “How Have CBO’s Projections of Spending for Medicare and Medicaid Changed Since the August 2012 Baseline?” On February 5, the CBO released a new report reducing its estimates of spending for the Medicare and Medicaid programs compared with its estimates in the August 2012 baseline. For the 2013–2022 period, CBO estimates projected spending for those programs is now $382 billion (or 3.5 percent) below the agency’s prior estimates in August 2012.

Developments

Three types of developments might cause CBO to revisit its projections: (1) enacted legislation, (2) updates to the economic forecast, and (3) technical changes. Elmendorf suggests that in the case of Medicare and Medicaid, the recent downward adjustments reflect mostly technical changes. These changes have a hefty impact on spending, however, totaling $373 billion. The legislative and economic changes, Elmendorf noted, accounted for just $9 billion.

Medicaid Decreases

The biggest noted decrease projected by the CBO is for Medicaid spending. For the 2013–2022 period, CBO has reduced its estimate of Medicaid spending by $239 billion (or about 5.5 percent) compared with its estimate in August 2012. Elmendorf notes that the revisions reflect lower anticipated enrollment in Medicaid in addition to lower than expected costs per person. Although CBO has increased the number of first-time Medicaid enrollees, the agency’s projection of the number of people who would have been covered by Medicaid in the absence of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) has declined by a greater amount. Projected enrollment in Medicaid is actually lower because more people are now expected to obtain insurance through other sources. Additionally, spending is lower primarily because of adjustments to account for the slowed growth in Medicaid spending, as well as a healthier and therefore less expensive population with more children and healthy adults.

Reduced Medicare Spending

As for Medicare, CBO has reduced its 10-year projections of outlays for Medicare by $143 billion (or about 2 percent), but mostly for technical reasons, not due to other changes. A change in data on actual spending for 2012 indicated that for the third consecutive year spending was significantly lower than CBO had projected.

Spending Trends

Elmendorf notes that health care spending has grown much more slowly both nationally and for federal programs than historical rates would have indicated. CBO has responded to the trend and made a series of downward adjustments to its projections of spending for Medicaid and Medicare. For example, Elmendorf comments, from the March 2010 baseline to the current baseline, technical revisions reflecting the slower growth in the programs’ spending in recent years have lowered CBO’s estimates of federal spending for the two programs in 2020 by about $200 billion, by $126 billion for Medicare and by $78 billion for Medicaid, or by roughly 15 percent for each program.

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