Sizing up Medicare’s spending slowdown

Many have dismissed a recent slowdown in Medicare cost growth as temporary, a consequence of the economic downturn leaving Americans with less to spend on their medical care. Chapin White and Paul Ginsburg, however, beg to differ. Tracing the health-care spending slowdown back to 2005, they think we could be at the beginning of a more permanent trend:

There has been a long-term trend toward tighter Medicare payment policy, and policy changes that began in the middle of the 2000s have continued that tightening. The Deficit Reduction Act of 2005 (DRA) reduced payment rates for imaging, home health services, and durable medical equipment, and the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) made substantial cuts to Medicare Advantage plans. . . . All these specific constraints on payment rates probably also slowed growth trends in the volume of services provided, leading to a larger slowdown in spending growth.

The ACA permanently slows the growth in Medicare payment rates for almost every category of provider other than physicians and makes additional targeted cuts to home health agencies and some other providers. As a result, the CBO projects that over the next decade Medicare spending per enrollee will grow substantially more slowly than the overall economy, even if there is a permanent SGR “fix.” Negative excess growth in Medicare is not as implausible as it might first sound.