Order Code RS20484
March 3, 2000
CRS Report for Congress
Received through the CRS Web
Trends in Medicare Spending: Fact Sheet
Hinda Ripps Chaikind
Specialist in Social Legislation
Domestic Social Policy Division
When Congress passed the Balanced Budget Act of 1997 (BBA, P.L. 105-33), the
legislation was intended, in part, to constrain Medicare growth. However, both current
and projected spending are even lower than expected at the time of BBA’s passage. In
fact, the last 2 years have set records for low or declining rates of program growth. In
fiscal year 1998, the Medicare growth rate slowed to a then record low of just 1.5% for
the entire year, an amount less than would be expected allowing for increases in enrollment
and for inflation. The following year set a new record, when, for the first time in the
program’s history Medicare spending dropped from 1 year to the next. Mandatory
program spending declined by about $2 billion from $211 billion in 1998 to $209.3 billion
in 1999, almost a 1% decline.
Over the next several years Medicare spending is projected to grow at a moderate
rate, reversing the recent record trends of low (or negative) growth, according to CBO.
Projected Medicare spending for 2000 will increase by 4.1% over the 1999 level, while
over the 5-year period (2001- 2005), spending is estimated to increase at a 7% annual rate.
This moderate rate of the growth in program costs can be contrasted with the 10% yearly
growth experienced in the 1990s prior to the passage of the BBA. Interestingly, CBO’s
most recent estimates continue to show this tempered growth despite the inclusion of
additional Medicare spending provided by the Balanced Budget Refinement Act of 1999
(BBRA, P.L. 106-113). CBO estimates that the BBRA would add $1 billion back to the
Medicare program for 2000, and approximately $16 billion total for 2001-2005.
While part of the lower rate of growth may be attributed to under-estimates of the
savings derived from the BBA, it is difficult to pinpoint any one factor as the exact cause
for this projected decline. Many factors other than the BBA, such as an improved
economic forecast and heightened anti-fraud activities, are significant components of the
decline in the rates of growth in Medicare spending. (See CRS Report RS20238,
Trends
in Medicare Spending After the Balanced Budget Act, for a detailed discussion of the
factors affecting Medicare projections.)
CBO also projects that Medicare spending growth over the course of the 2001 to
2010 decade will average 6.9% annually. Over that period, Medicare’s share of the U.S.
national income is projected to increase from 2.3% of Gross Domestic Product (GDP) in
2000 to 2.9% by 2010. Most of Medicare’s program growth is expected to result from
two factors: increased enrollment and automatic updates in reimbursements for services.
Congressional Research Service ˜
The Library of Congress
Enrollment growth in Part A of Medicare is expected to increase from 39 million to
46 million beneficiaries, between 2000 and 2010. Further, some of the provisions of the
BBA are set to expire in 2002, so that automatic annual updates for many services that
currently average 2.5%, are expected to begin to increase by about 3% annually beginning
in 2003. The remaining components of Medicare program growth include factors such as
changes in the costs for new medical technology and changes in the practice and billing
patterns in medicine. Historically these other factors have added about 3 to 4 percentage
points to the growth of the Medicare program each year. However, CBO’s latest
projections hold growth resulting from these factors to about 2.5% each year, largely as
a result of improved compliance with Medicare billing rules, and an expected shift in the
age distribution of the Medicare population to a larger proportion of relatively younger,
and therefore less costly, beneficiaries.
The table compares
CBO Baseline Estimates for Medicare
CBO’s latest projections,
(fiscal year, dollars in billions)
released in January 2000, with
two earlier estimates; those
1 year
5 years
(2000)
(2001-
made in July 1999, just prior to
2005)
the passage of the BBRA, and
the January 1997, estimates
Mandatory Outlaysa
calculated prior to the passage
CBO Pre-BBAb Baseline (1/97)
$273.0
$1,716.7
of the BBA. As shown in the
CBO Pre-BBRAc Baseline (7/99)
$224.8
$1,398.6
table, according to CBO’s
latest projections, Medicare will
CBO Latest Baseline (1/00)
$217.9
$1,342.6
spend about $217.9 billion in
Change
fiscal year 2000 and a total of
$1,342.6 billion over the
Pre-BBA to Pre-BBRA Baseline
-$48.2
-$318.1
following 5 years (2001-2005).
Pre-BBRA to Latest Baseline
-$6.9
-$56.0
These figures reflect the
downward trend in estimates,
Total Change
-$55.1
-$374.1
even when compared to CBO’s
Average Annual Rates of Growth
pre-BBRA estimates done just
6 months ago. Comparing the
CBO Pre-BBA Baseline (1/97)
10.0%
9.4%
latest figures to the July 1999
CBO Pre-BBRA Baseline (7/99)
7.3%
7.8%
estimates, shows that projected
spending is lower by
CBO Latest Baseline (1/00)
4.1%
7.0%
$6.9 billion for 2000. For the
Source: U.S. Congressional Budget Office.
a Mandatory Outlays include benefits outlays and only mandatory
5-year period, estimated
administration outlays. It does not include discretionary
spending is lower by $56
administration outlays or premium receipts.
billion, a 4% reduction.
b BBA is the Balanced Budget Act of 1997.
c BBRA is the Balanced Budget Refinement Act of 1999.
Concurrently, the projected rate
of growth for Medicare
spending for the 5-year period
was lowered from 7.8% per
year to 7% per year. Comparing the latest estimates to pre-BBA estimates, computed 3
years ago, shows a significant decline in the projected rate of growth. Five-year estimates
of Medicare spending are down by $374.1 billion, or more than 20%, with a concomitant
decline in the estimated average annual rate of growth from 9.4% to 7% per year.
When CBO updates the component parts of their latest baseline estimates (such as
hospital and home health costs), CRS Report RS20238 will be revised to provide more
detailed analysis.