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Short-term Medicare and Medicaid spending to dip, CBO projects

Spending on Medicare and Medicaid is expected to be roughly $100 billion less than previously anticipated over the next decade in large part because of reductions in the cost of labor and medical services, according to the latest analysis from the Congressional Budget Office (PDF).

Medicare spending is anticipated to be $71 billion less than previously projected, while Medicaid spending is expected to drop by $31 billion.

But overall healthcare spending is still anticipated to rise by $67 billion in 2014, a 9% increase. That's driven in large part by the expansion of Medicaid, with spending on the program expected to increase by $40 billion, or 15%, over 2014. Currently 26 states have opted to expand Medicaid eligibility to households with incomes up to 138% of the federal poverty threshold, as provided for under the Patient Protection and Affordable Care Act.

In addition, the CBO estimates that the federal government will spend $17 billion on subsidies for the roughly 8 million individuals who signed up for coverage through the state and federal health insurance exchanges. That's actually down from a projection of $18 billion in the CBO's February analysis.

Spending on major healthcare programs, Medicaid, Medicare, the Children's Health Insurance Program and subsidies for exchange policies, is expected to increase by 85% over the next decade, to $1.75 trillion in 2024. That represents a third of all projected spending growth during that time frame, more than any other segment of the budget, according to the CBO. The share of the gross domestic product represented by federal spending on healthcare programs is expected to increase from 4.9% to 5.9% over that time span.

But Medicare spending is only anticipated to grow by $12 billion this year, a 2% increase. That's similar to the increase in 2013 and below the rate of growth in the number of Medicare beneficiaries. Between 2011 and 2012, the Medicare population increased by 3.6%, to 49.4 million.

That slower spending growth means that funding a permanent fix to Medicare's sustainable growth-rate physician-payment formula remains relatively cheap. The CBO estimates that it would cost $131 billion to eliminate anticipated reductions in payments to doctors over the next decade. The most recent short-term patch is set to expire at the end of March 2015. Previously, the CBO had estimated that it would cost as much as $300 billion over a decade to repeal the SGR funding formula.

Follow Paul Demko on Twitter: @MHpdemko

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