Medicare spending will grow at an annual rate of 7.2% through 2012, with automatic annual updates to provider payments representing much of the increases, the Congressional Budget Office said in a 10-year budget outlook last week.
In fact, 45% of the growth in Medicare spending will be related to automatic updates to payments for hospitals, physicians and other healthcare providers, the CBO said. Automatic updates occur in years in which Congress doesn't act to set payment rates.
That could make Medicare provider payments a tempting target for future cost control if federal budget deficit projections materialize. In the past, presidents and Congress have put restraints on provider payment growth-particularly when it's healthy-to reduce the deficit.
Charles "Chip" Kahn, president of the Federation of American Hospitals, said hospitals may be vulnerable in the next 18 months because of the new budget statistics.
Legislation enacted in 1997 mandated that Medicare's annual inpatient hospital payment update be set at less than inflation for all but one year from 1998 to 2003. But since that cap on payment growth expires in September 2003, Congress may take a new look at Medicare hospital payments.
Kahn said the continuing attack on international terrorism combined with a recession may make Congress more willing to spend more and increase the deficit this year, so Medicare payments might not be in jeopardy.
But, he added, "If the economists are right and we're out of recession in 2003, the game will change next year. I don't know what the pressures will be, but we need to be very wary of them as they might affect Medicare."
Given a 7.2% annual growth rate, total Medicare expenditures are projected to reach $498 billion in 2012.
Counting the Social Security surplus, meant to support future retirees, the federal government will accumulate a $2.5 trillion surplus overall from 2003 to 2012. Without the Social Security reserves, the picture changes to a cumulative $242 billion deficit.
Previous congressional efforts to control Medicare spending growth-namely the Balanced Budget Act of 1997-have already done their work. Most savings attributable to the budget law occurred in fiscal 1999, the CBO said.
Last year Medicare spending grew 10% to $238 billion. Earlier implementation of higher Medicare HMO rates, in September 2001 instead of one month later, accounted for 1.4% of the increase. The remainder "reflects large increases in payment rates for many categories of services," the CBO said.
During a briefing last week, CBO Director Dan Crippen echoed President Bush's call in the State of the Union address for Medicare reforms in anticipation of the retirement of 77 million baby boomers, who will turn 65 between 2010 and 2030 (See story, p. 6).
By 2030, the projected cost of Social Security and Medicare will equal about 15% of the nation's gross domestic product, Crippen said, only a few percentage points shy of the 18% of GDP that Americans have paid in taxes, on average, since 1944.