The Incredible Shrinking Medicare Tab

Every year in January the Congressional Budget Office releases its Budget and Economic Outlook for the next decade (they also produce an abbreviated update to the year's outlook in the late summer, as they did last August). Just this week they released this year's: The Budget and Economic Outlook: Fiscal Years 2013 to 2023.

In these documents the CBO, among other things, projects how much the federal government is going to be spending on Medicare in each year. What's fascinating is that if you look at each of these documents, every time they release a new one their projections for Medicare spending each year shrink. Click on this, a simple compilation of their Medicare spending projections (in billions of dollars) going back to the January 2010 report (i.e. the last budget outlook before health reform became law):

What the CBO is doing here is just acknowledging what's already known: Medicare spending growth right now (particularly on a per capita basis) has slowed to a crawl. A turn of events that is, to borrow a phrase from HHS, "unprecedented in the history of the Medicare program." What's amusing is that it continues to surprise the CBO and they have to keep revising their already-revised-downward projections even more. But as they say in this week's report:

In recent years, health care spending has grown much more slowly both nationally and for federal programs than historical rates would have indicated. (For example, in 2012, federal spending for Medicare and Medicaid was about 5 percent below the amount that CBO had projected in March 2010.) In response to that slowdown, over the past several years, CBO has made a series of downward technical adjustments to its projections of spending for Medicaid and Medicare. From the March 2010 baseline to the current baseline, such technical revisions have lowered 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.

This doesn't mean Medicare doesn't still face big challenges: even if it sustained last year's per capita growth rate of just a bit more than 0% (a big if and a major challenge), the Baby Boomers are going to continue aging into the program. That means total spending is going to swell, even if per capita costs remain at historic lows. But it's worth remembering sometimes that things are not always quite as grim as they seem.