Continued Slow Growth for Medicare in 2014

CBO's release of the June Monthly Budget Review (MBR) gives us another data point in what has been an interesting story for Fiscal Year (FY) 2014: the slow growth of Medicare. Last month, the MBR showed Medicare spending growing by only 0.3 percent in FY 2014 compared to spending in the same time period (eight months) in FY 2013. We further noted that excluding the effects of temporary or phased-in policies (in order to illustrate Medicare's underlying growth rate) would bring the growth rate up to 2.5 percent, still well below anticipated economic growth and Medicare beneficiary growth. Incorporating the June data shows a mild acceleration in Medicare's growth rate, yet still remaining very low.

CBO finds that Medicare over the first nine months of FY 2014 has grown by only 1.2 percent compared to the same time period for FY 2013. Removing the effects of temporary policies, the underlying Medicare growth rate through nine months of FY 2014 is 3.6 percent.* This is still slightly below CBO's projected economic growth rate of 3.9 percent and their beneficiary growth rate of 3.8 percent, so underlying Medicare spending per capita and as a share of GDP has held roughly constant, an impressive feat.

* 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.