This is arguably the most unexpected piece of news in the new Medicare Trustees report: the government’s hospital insurance program might be spending less money to cover more beneficiaries than it did a year ago.
The amazing news buried inside a 283-page Medicare report
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Medicare’s hospital insurance program — known to wonks as Medicare Part A — spent $266.8 billion covering 50.3 million people in 2012. In 2013, the the same program spent $266.2 billion to cover 51.9 million people. These figures come from Table II B.1 in the 2012 and 2013 reports.
Medicare’s hospital insurance program is gigantic; it spends more money in a given year than the entire state of Wisconsin. In that context, $600 million is not much more than a rounding error. And some senior administration officials I spoke with cautioned against reading too much into these particular figures; receipts for services rendered in 2013, for example, might trickle after the year has ended.
But what’s definitely clear — and what’s driving this trend — is that Medicare is spending significantly less per person than they did two years ago. And this report expects that trend to continue for another two years going forward.
By 2015, the Medicare Trustees’ Report projects that the program will spend less per person on hospital care than it did in 2008. This doesn’t happen much in health care: not just slower growth, but the actual dollar amount spent on a given type of care dropping.
These figures only represent the hospital insurance part of Medicare (this is Medicare Part A). The government insurance program has separate programs for doctor visits (Medicare Part B) and prescription drug coverage (Medicare Part D).
But even when you look at the overall picture, it generally looks pretty good: per-person Medicare spending has grown by an average of 0.8 percent since 2009. That’s a lot slower than the rest of the economy, which has grown at an average 3.1 percent rate. Between 2012 and 2013, it was even slower: Medicare’s per person costs stayed exactly the same.
As Health and Human Services Secretary Sylvia Mathews Burwell put it at a press briefing today, “that is a growth rate of 0 percent.”
As to why this is happening, that’s the big question. There has been an overall slowdown in health care spending, some of which is likely due to the recession: when people have less money to spend, they don’t buy as many medical services.
But Medicare beneficiaries should be somewhat insulated from the economy. They don’t lose insurance coverage during economic downturns, for example, as many who lose their jobs do. Many live on a more fixed income, too.
Its certainly possible that the overall economic climate might have impacted seniors’ decisions about health care. And its possible the health care law, and its changes to the Medicare system (this report estimates there are 165 of them) have had an impact as well.
The Affordable Care Act, for example, penalizes preventable readmissions — times when seniors turn up at the hospital a second time after something goes wrong during their first visit. Readmissions have been falling pretty steadily for the last few years, and those reductions could be showing up in the lower per-person spending.
Last, the downward shift in hospital spending could just reflect larger trends in how doctors deliver medicine. As new innovations happen, procedures that used to be more invasive — and require a hospital stay — improve, become easier and shift into an inpatient setting, or can be treated with prescription drugs. You see that change below, with hospital care, since the early 1980s, becoming a slightly smaller portion of the country's overall medical bill. 
(California Healthcare Foundation)
Overall, this report suggests a pretty positive trend for Medicare spending — it just doesn’t totally explain the forces that are driving it.
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