Medicare cost growth is ... slowing?

It’s not a trend you expect to find among fears of runaway entitlement spending: Cost growth in Medicare is, by at least one measure, slowing.

Yesterday, S&P Healthcare Economics Indices put out this chart,  which shows per-capita health-care costs over the past few years. What you’re looking at, below, is how much patient-by-patient revenue has been increasing depending on who is paying. Take a look:

See that line falling off sharply since about July 2009? That represents revenue that Medicare generates for health providers. This chart shows per-patient Medicare revenue falling to a 2.5 percent growth rate, the lowest since S&P Indices started tracking numbers six years ago. At the very top of the this chart you see the “commercial index” — which is mostly private insurance companies — seeing some drop-off, too, but not nearly at the rate in Medicare.

It’s not particularly surprising to see Medicare costs increasing at a rate slower than private insurance — as a chart to the right, from the Center on Budget and Policy Priorities shows, that’s been true for decades. What struck me about this chart how much that growth rates have separated recently.

I asked Maureen Maitland, vice president at S&P Indices, to explain why this gulf between private insurance and Medicare started growing two years ago. She points to two factors that both stem from the recession that would particularly impact Medicare spending. The first one has to do with Medicare itself, which may have grown slightly more timid about investing in new technologies that can drive up health-care costs. The second has to do with the patients, who, in tough economic times, tend to go to the doctor less. This financial pressure could hit fixed-income seniors particularly hard.

“Once the economy slows down, private insurers still have the competitive pressure to be more generous with what new technologies they cover,” says Maitland. “Medicare is a single provider that has more leeway deciding what to cover.”

Unfortunately, this chart doesn’t show necessarily show that we’re doing a good job at controlling costs. All the health-care costs are still going up — just a little more slowly than they did before. The sense from S&P is that there could be some cost-shifting going on: seniors relying more heavily on private plans to cover things that Medicare won’t. But, at the end of the day, slower Medicare cost growth is at least more encouraging than a really fast rate of growth. It’s a dose of relatively decent news in a day of “just depressing beyond words” stock market crashes.