Trends in Medicare Spending and Financing Portend Cloudy Future, Report Says

Total and per capita annual growth rates in Medicare are trending higher than their historically low levels of the past few years, the Henry J. Kaiser Family Foundation (KFF) reported recently in a review of Medicare data from the 2018 annual report of the Boards of Medicare Trustees from the CMS’ Office of the Actuary and the 2018 Medicare baseline and projections from the Congressional Budget Office.

KFF said that the prospects for making the program financially sustainable for future beneficiaries are unknown, even as growth in overall Medicare spending is driven by 3 factors:

• The aging of the population
• Growth in enrollment as the so-called baby boom generation becomes eligible
• Increases in per capita healthcare costs.

In addition, the repeal of the Affordable Care Act (ACA)’s individual mandate and repealing the Independent Payment Advisory Board (IPAB) have worsened the short-term outlook for the Medicare Hospital Insurance (Part A) trust fund and have led to projections of higher Medicare spending in the future, KFF said.

IPAB sought to reign in Medicare spending if targets went over certain levels, but it had almost universal opposition from the healthcare and medical communities. In the beginning of its 8-year lifetime, the IPAB was the subject of Republican claims that it would lead to Medicare “death panels.”

Some of the proposed program changes to address Medicare spending challenges include:

• Restructuring Medicare benefits and cost sharing
• Further increasing Medicare premiums for beneficiaries with relatively high incomes
• Raising the Medicare eligibility age
• Shifting Medicare from a defined benefit structure to a “premium support” system.

KFF said those changes could increase the financial burden on future generations while leaving unaddressed long-term financial challenges, raising the question of whether raising the Medicare payroll tax or increasing other existing taxes should be considered.

Medicare spending is expected to rise to 18% of total federal spending by 2028, up from 15% in 2017. Also, as previously reported, based on the latest projections in the 2018 Medicare Trustees report, Part A is projected to be depleted in 2026, 3 years earlier than the 2017 projection.

In 2017, Medicare benefit payments totaled $702 billion, up from $425 billion in 2007. As a share of total Medicare benefit spending, payments to Medicare Advantage plans for Part A and Part B benefits nearly doubled between 2007 and 2017, rising from 18% ($78 billion) to 30% ($210 billion), as enrollment in Medicare Advantage plans increased over these years.

Spending on Part A benefits (mainly hospital inpatient services) decreased from 47% to 42%, while spending on Part B benefits (mainly physician services and hospital outpatient services) rose from 41% to 44%. Spending on Part D prescription drug benefits rose from 11% to 14%.

Spending growth will increase at a faster growth over the next 10 years, compared with historical trends.

Average annual growth in Medicare per capita spending was 1.5% between 2010 and 2017, down from 7.3% between 2000 and 2010, due in part to the ACA’s reductions in payments to providers and plans, and to growth in younger beneficiaries, who have lower per capita health care costs.

Medicare per capita spending is projected to grow at an average annual rate of 4.6% over the next 10 years. In addition, actuaries project a higher per capita growth rate in the coming decade for each part of Medicare, compared with their 2010-2017 growth rates: 5.4% for Part B, 4.6% for Part D, and 3.7% for Part A.