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The Health and Costs of Medicare Beneficiaries in the Future

By December 29, 2015Commentary

Medicare is a program in transition.  It is experiencing a substantial influx of beneficiaries, most of whom are younger and healthier, so that, even though many existing beneficiaries are living longer, pr capita spending is flat to down and may stay that way for a few years.  The program has also embarked on a fairly drastic payment overhaul, which among other things has the effect of lowering spending.  The large number of new beneficiaries, however, will eventually begin to age and have more health problems, and the existing populations will continue to live longer with more diseases, so Medicare per capita spending is almost certain to begin to grow more rapidly in the future.  An article in the Forum for Health Economics and Policy explores these issues.  (FHEP Article)  The article looked at changes in the population and health of Medicare beneficiaries between the period 2010–2030.  The number of beneficiaries will go from about 40 million to 67 million.

The researchers used individual-level projections coupled with other data to create a detailed model of future Medicare spending.  In general, in 2030 the average beneficiary will be more likely to be female, less likely to be Caucasian, more educated, less likely to have smoked, more likely to be obese, more likely to be disabled and to have more chronic diseases.  Life expectancy is expected to grow to 20 years for those who are 65 in 2030.  That means Medicare will have to pay for at least 20 years of medical care on average for new beneficiaries.  Because of obesity and the prevalence of chronic diseases, these people will often be living with more medical needs during this longer life.  Assuming that current reimbursement formulas stay in place, a dubious assumption, a typical beneficiary will therefore incur much more lifetime spending in 2030.  For a 65-year-old in 2010, Medicare would spend a present-value average of $131,000.  For a 65-year-old in 2030, the comparable figure is $223,000.  Medicare spending will more than double, in constant dollars.  That constant dollars is important to note, because on a nominal basis it will be a lot more.  Do you think we can double taxes and other revenue devoted to Medicare in constant dollars over this period?  The article discusses whether Medicare could achieve significant savings by shifting from a disease management perspective to attempting to delay the health effects of aging.  But more realistic solutions are to match the age at which people become eligible to gains in life expectancy, which would mean that we should move the eligibility age up to 70 in the near future, as it should be moved up for social security as well.  We also should means test the program even further, so that greater benefits can be provided for poorer beneficiaries while those who have sufficient income or assets pay most or all of the Medicare costs they incur.  And we should immediately stop have social security disability recipients be eligible for Medicare.  The sooner we take these and other significant steps, the less likely we face a crisis in a few years.

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