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The Medicaid and healthcare outlook in the US

From 2009 to 2011, total health spending grew at the lowest annual pace since they started keeping these records (52 years ago).  In fiscal year 2012, Medicare spending per beneficiary grew just .4%.  Overall Medicare spending grew 3% (because there are more beneficiaries).  The CBO projects spending on Medicare and Medicaid in 2020 will be $200 billion – a 15% drop from the CBO’s projections three years ago.

Compare the slowdown to historical growth.  For the past 43 years, Medicare spending per beneficiary grew 2.7% faster than the overall economy.  Medicare spending grew from $7.7 billion in 1970 (.7% of GDP) to $551 billion in 2012 (almost 4% of GDP).  But, for the last three years, Medicare costs per person have grown 1.3% slower than GDP.

What explains this drop?  Analysts think that the weak economy is only part of the reason for reduced growth in health spending.  We’ve also been starting to see changes in the way insurance is compensating doctors.  The slowdown in spending started even before the recession (so it’s not purely a recessionary issue).  On the downside: (1) this doesn’t solve our problems; (2) we’ve had temporary slowdowns in spending before; and (3) this may reduce pressure on Congress to address our long-term problems.

The future isn’t pretty.  Unfortunately, the number of Medicare beneficiaries is projected to grow 3% each year as the boomers retire.  This is why Medicare spending is expected to be more than 4% of GDP in 2023 and 6.7% in 2037.