TABLE 9-1   Excess Cost Growth (%) in Health Spending During Four Time Periods

  National Health Spending Medicare Medicaid All Other
1975 to 2007 2.0 2.4 2.0 1.9
1980 to 2007 2.0 2.2 1.7 2.0
1985 to 2007 1.7 1.4 1.3 1.9
1990 to 2007 1.5 1.6 1.1 1.5

SOURCE: Congressional Budget Office (2011).

the long-run projection period; that is, most of the increase in Medicare spending in the Trustees baseline projection is the result of demographic change rather than health care cost growth.9

There is a great deal of uncertainty about whether these lower payment updates will allow Medicare beneficiaries to continue to be provided health care at a level roughly comparable to that received by the nonelderly and, if not, whether such a system would continue to be viewed as desirable (see Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2011, also referred to as the Medicare Trustees Report). For these reasons, both the CBO and CMS present alternative Medicare projections in which Medicare payments to providers are higher than those allowed under current law. The CBO assumes that the ACA cuts turn off in either 2020 (CBO baseline) or 2030 (CBO alternative), whereas the Medicare Trustees projections assume that the ACA cuts either last indefinitely (Trustees Current Law) or are phased out beginning in 2020 (Trustees Alternative). In addition, it is widely believed that Medicare’s payment system for physicians, the Sustainable Growth Rate (SGR) system, will eventually be amended, as the administration and Congress have repeatedly stepped in to postpone the cuts to physician payments required under this system.10 Both the CBO and the Trustees alternatives assume physician payments will be higher than those allowed by the SGR.

The impact of these varying assumptions, along with an estimate of how Medicare spending would rise under the assumption of no decline in excess cost growth, are depicted in Figure 9-2. Under the 2011 Trustees current-law projection, Medicare expenditure rises from 3.7 percent of


9The Trustees boosted their assumption about excess cost growth in their most recent report (Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, 2012), but aging is still the predominant factor contributing to the rise in the share of GDP allocated to Medicare over the long run.

10The SGR has annual caps on Medicare spending on physician and other services; when these caps are exceeded, the prices paid per service are lowered.

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