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Medicare Leads in Controlling Health Costs

Medicare has been the leader in reforming the health care payment system to improve efficiency and has outperformed private health insurance in holding down the growth of health costs, as we note in our newly updated report on Medicare’s finances.  Since 1987, Medicare spending per enrollee has grown by 5.7 percent a year, on average, compared with 7.0 percent for private health insurance.  (See figure.)

This favorable trend will continue over the coming decade, according to the latest national health expenditure projections from the Centers for Medicare & Medicaid Services (CMS).  Medicare spending per enrollee will grow at an annual rate of 3.9 percent between 2014 and 2025, CMS projects, while private health insurance will grow by 4.6 percent.

The Affordable Care Act (ACA) envisions that Medicare will continue to lead the way in efforts to slow health care costs.  It authorizes the Center for Medicare & Medicaid Innovation to test new models to reduce program spending while preserving or enhancing the quality of care.  And the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 moves toward paying physicians based on quality of care rather than volume of procedures.  Along with directly reducing Medicare costs, the ACA and MACRA payment changes may also encourage structural changes throughout the health care payment and delivery system that may generate further savings.

For more information on Medicare’s finances, read our updated report, Medicare Is Not “Bankrupt.”