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 from earlier this year. Total Medicare spending is projected at $7.7 trillion for the 10 years ending in 2022.

The change reflects lower spending growth for doctors, hospitals and prescription drugs since the U.S. economy fell into recession in 2007. "The slower growth of Medicare that we've seen is consistent with slower growth in healthcare costs more generally in the economy," CBO director Doug Elmendorf told a news conference.

Medicare, which provides benefits to nearly 50 million elderly and disabled people, has vaulted to the forefront of the presidential election campaign since Republican Mitt Romney chose Wisconsin congressman Paul Ryan, a budget hawk, as his running mate. Analysts now believe the program could play a key role in the outcome of the November 6 elections.

Representing 15.4 percent of current federal spending, Medicare is a prime target for deficit reduction. That is partly because retiring Baby Boomers are swelling its 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 also 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.

As a result, 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."

Meanwhile, Elmendorf said 2012 has proved to be the third consecutive year that CBO has had to reduce its forecasts for Medicare spending.

This year's reduction 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.

Overall annual U.S. healthcare spending growth is expected to hover near historic lows of around 4 percent through 2013 before accelerating later in the decade, according to the federal Centers for Medicare and Medicaid Services. Healthcare spending should outpace economic growth by about 2 percentage points on average for most of the decade.

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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