CBO reduces Medicare spending forecast by $19B this year

WASHINGTON (Reuters) - Medicare, the popular healthcare program for the elderly that both political parties vow to rescue from financial ruin, will spend less money over the coming decade than previously expected, U.S. analysts said on Wednesday.

In a report on the U.S. economy and budget, the non-partisan Congressional Budget Office reduced its spending forecasts for Medicare by $19 billion for 2012 and by $169 billion over the coming decade. Total Medicare spending is projected at $7.7 trillion over the decade.

The change reflects lower spending on doctors, hospitals and prescription drugs than CBO forecast in March.

The reduction in overall spending comes despite CBO's prediction of $136 billion more in payments to Medicare healthcare providers than its previous estimate for the next 10 years, spurred by increased reimbursement rates.

Medicare, which provides benefits to nearly 50 million elderly and disabled people, vaulted to the forefront of the presidential election campaign after Republican Mitt Romney chose Wisconsin congressman Paul Ryan as his running mate.

Analysts believe Medicare could now play a key role in the outcome of the November 6 elections.

It is a prime target for deficit reduction in part because the retiring Baby Boom generation is swelling the program's ranks and its costs tend to rise -- with overall healthcare prices -- at rates above general inflation. The program, which CBO expects to spend $550 billion this year, is classed as "mandatory" spending, as opposed to discretionary, because the government is legally obligated to pay for the claims of beneficiaries.

Medicare faces a potential financial crisis in 2024, when its trustees believe a government trust fund that helps pay for hospital benefits will be exhausted. Wednesday's lower CBO spending figures are not enough to forestall that event.

Ryan has proposed altering Medicare by converting its offering of guaranteed health benefits into a voucher system that would instead provide future beneficiaries with a fixed payment for purchasing health coverage.

Obama's healthcare overhaul would retain the current Medicare structure while reducing payment rates for healthcare providers. It would also attempt innovations designed to move the program away from its costly fee-for-service approach.

OPPOSITION FROM SENIORS

Senior citizens, who ordinarily favor Republicans and could sway the outcome of the November 6 election in several swing states including Florida, oppose the Ryan plan by 55 percent to 24 percent, according a new Pew Research poll.

Medicare is at the center of intensifying partisan battle in which Democrats accuse Romney and Ryan of wanting to "end Medicare as we know it," while Republicans claim Democrats would "cut" Medicare by hundreds of billions of dollars to finance "Obamacare."

CBO also predicted that Medicare's sister program, Medicaid, which provides health coverage to the poor, would also spend less money -- $375 billion or 7 percent less than expected over the coming decade, largely as the result of the Supreme Court's June decision on President Barack Obama's healthcare reform law.

The court allowed states to opt out of an expansion of Medicaid intended to extend health coverage to 16 million uninsured poor people beginning in 2014.

CBO lowered its spending estimate by $288 billion to reflect the likelihood that some states will either not participate in the expansion or expand Medicaid coverage to lower levels than authorized by the Patient Protection and Affordable Care Act.

(Additional reporting by David Lawder; Editing by Fred Barbash and Cynthia Osterman)

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