2014 Medicare Spending Growth Picking Up But Still Low

CBO's July Monthly Budget Review brings us ten months into the fiscal year, and it's time to update our tracking of the slow growth of Medicare so far in 2014. Through June, Medicare growth totaled 1.2 percent over the first nine months of FY 2014, or 3.6 percent when removing the effect of a number of temporary* or phased-in policies, mostly from the Affordable Care Act (what we refer to as the "underlying" growth rate).

Year-to-date through July, official Medicare spending growth picked up slightly to 1.6 percent, still very low by historical standards. Removing the effects of temporary policies shows an underlying growth rate of 3.7 percent, similar to what we found last month. This rate is slightly below both projected economic growth (3.9 percent) and Medicare beneficiary growth (3.8 percent) for FY 2014.

Next month, CBO will release updated budget projections, which should shed further light on how much of Medicare's slow growth CBO expects to hold for 2014 and beyond. If the numbers through ten months are any indication, CBO may be adding more savings onto the $900 billion of downward revisions it has already made to federal health care spending in recent years.

* The temporary policies holding down spending growth are the Medicare sequester (which wasn't in effect for part of FY 2013), payment reductions in the Affordable Care Act for home health agencies and Medicare Advantage plans, ramped-up hospital re-admission penalties, and frozen means-tested Medicare premium income thresholds. On the other side, the gradual filling in of the Part D "donut hole" increases spending growth.