Medicare is gobbling up an increasing portion of the federal budget. Huge numbers of people are coming into the program in the next few years. A paper from the CBO examines trends in beneficiary costs by age. (CBO Paper) In general, even in the Medicare program younger people can be significantly less expensive than older ones. So the flood of new beneficiaries isn’t breaking the bank yet because they are relatively healthy with few medical needs. But beneficiaries as a whole are living longer and when the current cohorts begin to get into their 80s, program expenses may rise dramatically. The working paper looks sole at the fee-for-service side of the program and analyzes spending by age cohort from 1997 to 2012 and projects potential costs. Two components are important, one is what the spending per beneficiary is at each age year, the second is whether there is differential trend among ages–is spending growing faster for older beneficiaries or for younger ones, or the same across all ages? Looking at the data, when thing that is interesting is that there were almost 2.5 million beneficiaries over age 90. That means Medicare has been paying for these people for 25 years or more. No way they contributed enough to cover that spending. And no way current workers can contribute enough to pay for the spending of newly-eligible beneficiaries, even more of whom will live into their 90s.
Per beneficiary spending increases by age, but the age with the highest spending changed over the study period from age 89 to age 97. In addition, the post-95 age cohort had the fastest spending growth rate. Some examples; in 1999 beneficiaries aged 65-74 averaged $4484 in spending, in 2005 it was $5616 and in 2012 it was $5601. That lack of growth from 2005 to 2012 reflects the influx of younger beneficiaries. For 85-94 year olds, average spending was $8397 in 1999, $11,089 in 2005 and $12,588 in 2012. So we see that spending grew much more rapidly for this cohort. In terms of type of spending, in 1999 almost half of all Medicare spending was for inpatient hospital. By 2012 that had declined while spending on post-acute care, hospice care and outpatient hospital care had increased as a percent of the total. In addition, more of spending for older beneficiaries went to post-acute care and growth in that spending accounted for much of the differential growth rate in spending for older beneficiaries. The likely significant increase in the proportion of older beneficiaries in the future, and these older beneficiaries greater spending, will overwhelm Medicare’s current revenue sources. The age at which people are eligible for Medicare likely needs to be increased, just as it has been for social security. And the best way to control spending is to turn the entire program over to Medicare Advantage. The private plans have shown a much better ability to manage the care and lower the spending of beneficiaries.