Why Did Medicare Spending Growth Slow Down?

Abstract

So-called excess growth in Medicare spending per beneficiary has varied widely and has slowed in recent years. The annual rate of excess growth fell from 5.6 percent during 1975–1983, to 2.1 percent during 1983–1997, to only 0.5 percent during 1997–2005. Changes in payment policies and regulations can help explain the observed slowdown. These include new prospective payment systems for hospitals and postacute care providers, and controls on aggregate Medicare physician spending. Competing explanations—increases in managed care enrollment, changes in Medicare cost sharing, and a systemwide spending slowdown—do not account for the slowdown.