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How Medicare reduced spending by $315 billion without even trying

Joe Raedle/Getty Images

Medicare has spent $315 billion less than expected over the past four years — all thanks to a remarkable slowdown in health-care spending growth.

The best evidence we have suggests this slowdown is largely about utilization: Medicare patients are using the health-care system less intensely than they did in the mid-2000s. The health-care law also includes a number of cuts to Medicare reimbursement rates — the prices the government pays doctors — which likely are also a factor.

Between 2002 and 2008, Medicare's per-person spending grew, on average, by 5.9 percent each year. Since 2009, health-care costs — both overall, but especially in Medicare — have grown at historically low rates. Medicare per-person spending inched upward by an average of 1.8 percent each year between 2009 and 2012, and then by another 0.2 percent in 2013.

That slower growth matters: the federal government spent $315 billion less on Medicare between 2009 and 2013 than it would have if the program kept growing at the 2002-to-2008 rates.

medicare savings

This may overstate the obvious, but $315 billion is a pretty astounding amount of money. It works out to a 12 percent reduction in Medicare spending in the time period studied (from an expected $2.87 trillion down to an actual $2.55 trillion).

Those savings are meaningful: when the government spends less money on Medicare, it frees up dollars to spend more money on education or defense or whatever other priorities the administration wants to invest in. Over four years, $315 billion could, for example, cover federal spending for the Children's Health Insurance Program (which covers about 8 million low- and middle-income kids) about nine times over. Or it could cover the entire Education Department's budget, without spending any more money.

This is what makes the spending slowdown in health care so meaningful for the federal government: it suggests that Medicare, a program typically seen as a budget-buster, may not be the juggernaut we thought.

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