5 Observations on Medicare Spending Growth

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Earlier this week, national health expenditure officials with CMS reported national health spending growth remained slow for the fourth consecutive year in 2012.

In a study published in Health Affairs, the analysts wrote national health spending in 2012 increased by 3.7 percent to $2.8 trillion, compared with a 3.6 percent increase to $2.7 trillion in 2011, according to the CMS analysis. Since 2009, annual growth in national health spending has remained between 3.6 percent and 3.8 percent, reflecting the lingering effects of the recent recession.

The CMS economists also delved into Medicare spending growth. Here are five of their key findings.

1. Medicare spending grew 4.8 percent to $572.5 billion (20 percent of national health spending) in 2012, slowing slightly from its 5 percent growth rate in 2011.

2. The slowdown occurred in spite of a 4.1 percent increase in enrollment for all beneficiaries, the largest increase in 39 years, as the oldest baby boomers became eligible to enroll in 2011. A one-time payment reduction for skilled nursing facilities and Medicare reimbursement reductions included in the Patient Protection and Affordable Care Act drove the deceleration in spending.

3. Fee-for-service expenditures — which accounted for nearly 75 percent of total program spending — increased by only 2.7 percent in 2012, down from 4.3 percent in 2011.

4. Total Medicare spending per enrollee grew 0.7 percent in 2012, down from 2.5 percent the previous year.

5. A 10 percent increase in enrollment drove up Medicare Advantage spending, which accelerated from a growth rate of 7 percent in 2011 to 10.9 percent in 2012. However, Medicare Advantage spending growth per enrollee slowed from 1.6 percent in 2011 to 0.8 percent in 2012, partly because of the PPACA tying benchmark payment rates to fee-for-service costs and linking reimbursement to quality ratings.

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