Context for Medicare

Chapter summary This report’s analyses of Medicare payment policies must be considered in the broader context of the nation’s health care spending overall and the realities of the federal budget. Health care accounts for a large and growing share of total economic activity in the United States, nearly doubling as a share of gross domestic product (GDP) in the past 30 years, from 9.2 percent in 1980 to 17.9 percent in 2010. Growth in health care spending in 2010 slowed to the second lowest rate since 1960. However, projections of health care spending show it growing faster than GDP by 1.1 percentage points annually through 2020. Growth in health care costs has a significant fiscal impact on federal, state, and local governments, as government payers directly sponsor nearly half of all health care spending. Furthermore, the federal government may be less able to provide financial support to fiscally strapped states as a result of its own long-term deficit picture. While the federal government’s short-term fiscal outlook could modestly improve as the economy recovers, the United States faces an even more significant long-term deficit that needs to be addressed by cutting spending, by increasing revenue, or by some combination of the two. Growth in health care spending in the Medicare and Medicaid programs contributes materially to that deficit. Medicare’s spending projections over the next 10 years envision much smaller growth in spending (5.9 percent annually) than in recent history (8.8 percent in the 10 prior years), even as the number of Medicare beneficiaries will grow about twice as fast. This smaller growth is largely due to recent legislation In this chapter • Growth in health care spending: Trends • Growth in health car