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Medicare Spending

By June 29, 2018Commentary

Here is a nice gloomy start for your holiday weekend.  The Kaiser Family Foundation provides some background information on the Medicare program.  (KFF Brief)   In 2017, $702 billion was spent on Medicare benefits, or 15% of federal spending.  Medicare is projected to be 18% of federal spending by 2028.  In 2026, the Medicare actuaries are projecting that the Hospital Insurance Trust Fund, which covers Part A benefits, will be out of money.  Medicare Advantage, which accounted for 18%, or $78 billion of Medicare spending in 2007, represented 30%, or $210 billion, in 2017.  From 2000 to 2010, per capita Medicare spending rose 7.3% per year.  With more healthy people coming in to Medicare, reductions in provider payments and the spread of Medicare Advantage, that per capita spending growth dropped to 1.5% per year between 2010 and 2017.  But it is expected to rebound to 4.6% average annual growth over the next ten years.  Anything that grows faster than the economy is not good, and that is likely to be well above GDP increases.  Medicare is financed by employee and employer taxes and by beneficiary premiums for some benefits.  Beneficiaries also have cost-sharing.  There is a limit to how much Medicare can reduce or limit provider payments, and we are quickly getting to that limit.  Health system margins are under pressure.  Moving more people to Medicare Advantage more quickly would be good, because those plans are better at managing spending.  CMS could then control how much payments to MA plans rise, with a reasonable expectation that the plans can live within those limits.  And wealthier beneficiaries should pay more, probably all, of their health costs.  But no matter what, this program is going to be a growing strain on federal finances.

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