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A Bend in the Medicare Cost Curve?

When we talk about America’s fiscal crisis, in large part what we’re talking about boils down to spending in one area: health care. Health care spending already accounts for more than 15 percent of U.S. GDP, and programs like Medicare and Medicaid are on track to devour the entire budget unless something changes. If America finds a way to cut its long-term healthcare spending, many of its fiscal problems will become easier to manage; if not, we have more serious trouble ahead.

Fortunately, we’re beginning to see some encouraging trends. Two charts from the Federal Reserve Bank of St. Louis suggest that Medicare spending is beginning to flatten after years of steady growth. The first chart, the annual rates of change in Medicare spending since 1970, shows an unmistakable downward trend int he rate of growth over the past five years.

Even more promisingly, the second graph charts Medicare spending as a percentage of GDP, again showing a relative flattening after three decades of steady growth.

Three years is a very short period of time, and it’s simply too early to say whether this data is a minor aberration or the beginning of a new short-term trend. But if the Medicare cost curve truly is bending, all the fiscal problems facing the U.S. will be easier to deal with.

Unfortunately, these graphs aren’t quite as encouraging as they look. Although Medicare payments are growing at a historically low rates, they are still growing faster than GDP, threatening to make the program unsustainable in the long run. With the number of people to be enrolled in the system rising as the boomers retire and lifespans increase, costs are more likely to accelerate than continue to slow.

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