What caused the Medicare spending slowdown?

There's a $126B gap between CBO projections and actual numbers

In 2009, the Congressional Budget Office (CBO) released projections of what Medicare spending would be in 2014. As 2014 draws to a close, it appears actual spending will fall short of anticipated numbers. The CBO predicted Medicare spending would be $706 billion for this year, but spending ended up amounting to $580 billion.

A number of factors contributed to this $126 billion gap, according to a new analysis from the Kaiser Family Foundation.

While about two-thirds of the gap can be explained, the remaining third, or $48 billion, remains unexplained. Listed below are known factors that can be explained and some that remain a bit of a mystery.

The explained: The Affordable Care Act

The CBO previously predicted that the ACA would reduce Medicare spending by $58 billion this year. Here's how KFF broke it down:

  • When the ACA was implemented in 2010, it included a pricing formula that dictates how much Medicare pays to providers via a fee-for-service program. Because prices continue to grow more slowly thanks to the ACA, that formula has been adjusted and is expected to reduce Medicare spending by $24 billion this year.
  • In addition, the CBO estimated that payment changes to Medicare Advantage plans would reduce Medicare spending by $16 billion this year. The ACA ended up eliminating the Medicare Improvement Fund, set up by Congress prior to the ACA, which accounted for another $16 billion for 2014.
  • The final $2 billion comes from a variety of payment and delivery systems reforms, such as accountable care organizations.

Taking these factors into account, though, net savings actually totaled $69 billion, KFF found. All told, that's more than half of the $126 billion gap. But there's still a lot of savings yet to be unaccounted for.

The unexplained: Provisions not yet quantifiable

When it comes to the unexplained, KFF has some thoughts.

  • The ACA required the Department of Health and Human Services to establish the National Strategy for Quality Improvement in Health Care. In 2011, the NSQIHC launced a public-private partnership focused on reducing hospital admission rates and medication errors.
  • From 2010 to 2011, the Agency for Healthcare Research and Quality found that overall hospital-acquired condition rates dropped 9 percent. While this reduction would reduce Medicare spending, the size of the impact is still unclear, KFF said.
  • The economy turned south in December 2007, so it's possible the recent Medicare slowdown may be, in part, thanks to the Great Recession. The elderly, for instance, did experience declines in income and liquid assets, KFF said--but there is little evidence to attribute the recession to the spending gap.

For more:
- here's the analysis

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