MedPAC Report on Health Spending and Medicare

By August 15, 2017 Commentary

The Medicare Payment Advisory Commission issues several reports each year.  Its report on national health spending as it relates to Medicare combines data from several of its other reports and sources.  In the next few posts I will give a few of the highlights from the report.   (MedPAC Report)   The report focuses on personal health spending, which is far and away the single largest contributor to total national health spending, but does not include things like the cost of administering government programs like Medicare and Medicaid, the administrative costs and profits of private payers, public health spending, and health investment, like building new hospitals.  Personal health spending is spending for prevention, diagnoses and treatment of individuals and came to $2.7 trillion in 2015, of which $605 billion or 22% was paid by Medicare.  35% came from private payers, but that is dispersed across hundreds of health plans and even more employers.  Medicaid was 22%.  Out-of-pocket spending was 13%, but is actually larger because that is just cost-sharing amounts, but not premium sharing.  So the real out-of-pocket spending would have to include premiums paid by consumers and that would make their share of spending much higher.  Medicare recipients pay premiums for Part B services.

By category of spending, a comparison of 2006 to 2015 reveals some interesting shifts.  The most notable is that in 2006 inpatient hospital was 31% of Medicare spending but it represented only 22% in 2015.  Medicare Advantage spending was 16% in 2006 and 27% in 2015, as MA enrollment continues to grow rapidly.  Drugs went from 11% in 2006 to 14%.  Payments under the physician fee schedule declined from 15% to 11% over the time frame, but hospital outpatient spending rose from 5% to 7%.  This likely reflects hospital acquisitions and employment of physicians.  Although there is a lot of concern about post-acute spending, SNF spending was steady at 5% and home health actually declined from 4% to 3%.  In the purely fee-for-service arm of Medicare, it is apparent that spending is shifting from hospital settings to outpatient ones and drugs.  One would expect that this trend is reflected even more strongly in the MA arm.  While it is 22% of personal health spending, Medicare accounts for varying percents by category.  It accounts for 25% of all hospital spending, 40% of home health and hospice care and 29% of drug spending.

From a per beneficiary perspective, Medicare spending has slowed in recent years, to an average of 1% annually between 2010 and 2015, but projections are that it will increase by 4% per year from 2016 to 2025.  Medicare has benefited from the relatively good health of a recent new beneficiaries, but as those beneficiaries age, their spending grows.  Medicare as a whole is taking up more and more of the federal budget, and is just part of an unsustainable trend in health and government spending.  The age of eligibility may need to be raised, or cost-sharing, especially for wealthier beneficiaries, significantly increased.  Under the scenario viewed as most likely by the Medicare Trustees, the trust fund, which pays for Part A services, will run out of money in 2028.  Not far off.  More tomorrow.

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