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CBO's Medicare estimates on par with White House figures


By Jessica Zigmond
Posted: May 17, 2013 - 8:30 pm ET
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Falling closely in line with the Obama administration's analysis last month, the nonpartisan Congressional Budget Office estimates that the policies in President Barack Obama's fiscal 2014 budget proposal would reduce Medicare spending by about $364 billion over 10 years, compared with the administration's estimate of $371 billion.

Released Friday, the CBO's analysis (PDF) said the president's budget proposal for next year would total $5.2 trillion in deficits between 2014 and 2023, or about 2.4% of the country's Gross Domestic Product projected for that period. That's about $1.1 trillion less than the $6.3 trillion (or about 3% of GDP) in deficits the CBO estimated in its own baseline projection, which assumes that all current spending and tax laws will remain unchanged.

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For instance, the CBO noted that the president's budget proposal assumes that the anticipated 24% Medicare physician payment cut for January 2014 will be averted. But because the CBO bases its estimates on current law, it does not assume that the current law's formula for Medicare physician payment rates will be replaced. The CBO assumes payment rates will be frozen at 2013 levels for 10 years, which would increase Medicare spending by $139 billion over 10 years. Analysts accounted for this in their overall estimates.

While the CBO analysis still predicts considerable deficits for the country, it shows a picture that is largely consistent with what the White House estimated, and it's not as dismal as some had feared, according to Paul Van de Water, senior fellow at the Center on Budget and Policy Priorities, a left-of-center think tank.

“While the need to do further deficit reduction has not gone away, the situation is far less than dire than it seemed a little while ago,” Van de Water said. “And that's very important for the healthcare sector because the healthcare sector was always going to be one of the focuses of any major deficit-reduction effort.”

One controversial provision in the president's proposal calls for replacing the consumer price index with the chained CPI for indexing certain major benefit programs, such as Social Security and Medicare, but not Medicaid. While the regular CPI updates a market basket of goods every two years, a chained CPI would evaluate consumer spending habits on a month-to-month basis. “On average, the rate of increase in the chained CPI is between .2% and .3% less each year than regular CPI for various reasons, one of which is that people change their consumption patterns,” Van de Water said. And while that difference might seem small, it's notable especially over time.

That would take a toll on Medicare payments that are updated directly by the CPI, such as those for graduate medical education and durable medical equipment, Van de Water said. The CBO estimates that implementing this provision of the president's budget would save the Medicare program about $7.8 billion over 10 years.

Overall, the healthcare stakeholders have reason to be pleased with the CBO's analysis of the president's budget and updated baseline projections this week.

“The relatively good news for the budget is good news for the economy,” Van de Water said, “and good news for the healthcare sector as well.”

Follow Jessica Zigmond on Twitter: @MHjzigmond


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