Why Has Growth in Spending for Fee-for-Service Medicare Slowed?: Working Paper 2013-06

Working Paper
August 22, 2013

By Michael Levine and Melinda Buntin

Growth in spending per beneficiary in the fee-for-service portion of Medicare has slowed substantially in recent years. The slowdown has been widespread, extending across all of the major service categories, groups of beneficiaries that receive very different amounts of medical care, and all major regions. We estimate that slower growth in payment rates and changes in observable factors affecting beneficiaries’ demand for services explain little of the slowdown in spending growth for elderly beneficiaries between the 2000-2005 and 2007-2010 periods. Specifically, available evidence does not support a finding that demand for health care by Medicare beneficiaries was measurably diminished by the financial turmoil and recession. Instead, much of the slowdown in spending growth appears to have been caused by other factors affecting beneficiaries’ demand for care and by changes in providers’ behavior. We discuss the contribution that those factors may have made to the slowdown in spending growth and the difficulties in quantifying those influences and predicting their persistence.