Is Medicare Spending Increasing?

The Department of Health and Human Services released a report this month highlighting the slowdown in Medicare spending growth in recent years. The administration says that Obamacare has led to slower growth in overall health spending, which in turn has made Medicare more sustainable. Another government document suggests that Medicare spending may be accelerating—but even if it isn’t, demographic trends will create pressure on the program in the coming years.

The HHS report compared Medicare growth rates from 2000 to 2008 with rates from 2009 to 2013, and found that $316 billion was saved over the latter period. The calculation includes Medicare savings for the year before Obamacare was enacted, which indicates that the law cannot be fully responsible for the slowdown. Some reports have suggested that much of the slower growth in health spending has stemmed from lingering economic weakness, though studies and experts differ on this point.

But in the week before this report was published, HHS undercut its message by acknowledging that Medicare spending has accelerated in recent months. The Centers for Medicare and Medicaid Services initially proposed a payment decrease for Medicare Advantage plans in 2016, but its final call letter proposed a payment increase, which it attributed to recent spikes in Medicare fee-for-service (FFS) spending:

The 2.5 percentage point increase from the Advance Notice to the Final Notice comprises 1.9 percentage points of additional FFS spending through 2015, an underlying additional FFS trend rate of 0.6 percent for 2016, and 0.1 percent for the assumption that Congress will enact the pending [“doc fix”] legislation….Initial information from Medicare actuaries suggests that contributing factors behind the change from the preliminary growth rate include higher than expected spending on impatient hospitalizations and some intermediary services such as therapy, rural health clinics and federally qualified health centers.

In other words, Medicare Advantage plans did not cut payments for the upcoming year because Medicare’s actuaries have observed an uptick in spending for traditional Medicare. It’s possible, then, that the trend of slower spending growth highlighted in the HHS report may have ended.

Even if the growth in Medicare spending stops, demographic trends in the coming decades will still force a re-examination of the program. The onslaught of retiring baby boomers—an average of 10,000 per day for two decades—will define our fiscal future for the next generation. Whether or not growth in Medicare spending remains slow for years to come—and some trends suggest that it won’t—federal policy makers still have good reason to prioritize right-sizing of entitlement programs.

This post was originally published at the Wall Street Journal Think Tank blog.