Medicare and Medicaid Spending Trends Don’t Justify Restructuring

August 10, 2012 at 11:34 am

Medicare and Medicaid spending per beneficiary has grown less rapidly than costs for private health insurance in recent years, as we have previously pointed out.  (See here and Figure 1 here.)

This favorable trend is projected to continue for at least the coming decade, according to a new article in The New England Journal of Medicine.  These data belie the claim that spending for Medicare and Medicaid is “out of control” and that the programs must be fundamentally restructured by adopting Medicare premium support or converting Medicaid into a block grant.

Medicare and Medicaid spending per enrollee will grow at rates of 3.1 percent and 3.6 percent, respectively, over the next ten years — well below the projected growth rate of 5.0 percent for private insurance and somewhat less than the growth of gross domestic product (GDP) per capita.  (See figure.)  John Holahan and Stacey McMorrow of the Urban Institute, a nonpartisan research organization, base these estimates on the latest projections of national health expenditures prepared by the Office of the Actuary at the Centers for Medicare & Medicaid Services.

Looking at these trends, Holahan and McMorrow conclude:

With the per-enrollee spending growth in Medicare and Medicaid less than that in private insurance and close to the growth in GDP per capita, it’s hard to argue that spending on either program, on a per-enrollee basis, is “out of control.”. . . Policy options such as premium support and block grants that entail indexing growth rates to some measure of economic growth will have a hard time achieving lower per-enrollee spending growth than is currently projected. CBO estimates suggest that both approaches may achieve savings for the federal government, but such savings shift Medicare costs onto existing enrollees and, in the case of Medicaid, onto the states as well. . . . Rather than pursuing major restructuring of either program, then, we should continue adopting available strategies to contain costs within the programs’ current structure, especially since many of those implemented in the past decade seem to be working, and many on the horizon appear promising.

We agree.

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More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

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5 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Emilie #

    Medicare Rights stated that Medicare spending has slowed, yet it appears that Medicare has paid less to providers than they did 15-20 years ago.

  2. John #

    By the way, for my previous comment, my source is the OECD. You can find the statistics by looking at frequently requested health data.

  3. John #

    It is much more instructive to look at what has happened over what some project will happen. The fact is what has happened is that health care cost growth has been much higher in the public sector than the private sector over recent decades.

    In 1960, public health spending was 23% of total spending. In 2010, it is 48% of total health spending. In terms of annual growth, that means that public health spending grew 10% annually per capita during that period compared to 7.5% annually for private health spending per capita.

    Of course, the 1960s saw the creation of numerous public health programs. But, even if you look at the data from 1970 to 2010, you still see much more growth in public health spending than private health spending (9% vs 7.4% annually).

    The fact is that, looking at the public sector as a whole and comparing it to the private sector as a whole, you see that public health spending is the real driver of health costs.

    • Rhonda #

      Public health spending is primarily Medicare which covers people over the age of 65. Private health insurance primarily covers younger people. Of course there is more health care spending on the elderly – that is when people are more likely to be sick. One would expect that health care costs will also increase as the baby boomers age and more of them move out of private insurance and into Medicare. Replacing Medicare with a premium support voucher does nothing to reduce costs. It merely shifts the cost to the individuals and state governments. Any analysis of the change in cost of medical care over time should also include analysis of the increase in expected lifespan. It may be acceptable to spend more if we receive value for the money in terms of better care and increased lifespan.

    • Paul Van de Water #

      Thank you for your comment. From a policy perspective, controlling health costs per person is what matters, since the size of the population is largely a given. In recent years, the fraction of the population with private health coverage has declined, and public coverage has partly filled the gap. This shift didn’t increase total national health expenditures, though, since public programs are generally less costly than private insurance for comparable coverage.

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