Study: Medicare isn’t going broke, but the repeal of affordable care act will add to burden

Confused about Medicare “facts” bandied about by politicians in Washington? Puzzled by the dire warnings both parties claim as proof of their position?

Now a respected, non-partisan foundation has released a handy guide to the national health insurance program that serves 57 million people age 65 and over as well as younger people with disabilities.

This information is particularly important because “Medicare is likely to be back on the federal policy agenda this year as Congress and President Trump pursue repealing and replacing the Affordable Care Act, and potentially consider options to reduce federal spending,” according to a statement by the Henry J. Kaiser Family Foundation, a non-profit that focuses on national health issues and the U.S. role in global health policy.

In its new issue brief, the foundation investigates the top facts about Medicare’s financial outlook in hopes of providing context for policy debate.

Key highlights:

▪ Medicare isn’t “going broke,” but it does face financial challenges. Policymakers are worried about the solvency of Medicare’s Hospital Insurance (Part A) trust fund, out of which beneficiaries’ hospital bills are paid.

If spending on benefits surpass revenues (primarily payroll taxes) and other assets in the trust fund account, Medicare’s actuaries estimate that the program can pay for hospital insurance benefits in full only until 2028.

“At that point, Medicare will be able to cover 87 percent of costs covered under Part A through payroll tax revenues – but the Medicare program will not cease to operate,” the study concludes.

▪ Repealing the Affordable Care Act would actually increase Medicare spending by more than $800 billion over 10 years.

“The overall program spending growth rate (of Medicare) fell from 9 percent between 2000 and 2010 to 4.4 percent between 2010 and 2015, even as the baby boom generation started aging onto Medicare beginning in 2011,” the brief states.

“Average annual growth in spending per beneficiary averaged 1.4 percent between 2010 and 2015, down from 7.4 percent between 2000 and 2010.”

▪ Both higher healthcare costs and the aging of the U.S. population have contributed to the growth in Medicare spending.

Older adults will continue to become a larger percentage of the overall population. By 2050, the population aged 65 and older will double, from about 40 million to 84 million people, and that of the 80-and-older set will nearly triple in the same period, from about 11 million to about 31 million. Those who make it past 90 will see their numbers quadruple from 2 million to 8 million.

“Because Medicare per capita spending rises with age and people age 80 and over account for a disproportionate share of Medicare spending, their higher numbers will place upward pressure on both total and per capita Medicare spending,” according to the brief.

▪ As a result of the higher healthcare costs and changes in the U.S. population, net Medicare spending is expected to rise to nearly 18 percent of the budget in a decade. It was $588 billion in 2016, about 15 percent of the federal budget.

▪ The fastest spending growth in Medicare-covered benefits is projected to be in the Part D prescription drug coverage. “Between 2015 and 2025, per capita spending growth is projected to be 5.8 percent for Part D, compared to 3.2 percent for Part A, which covers hospital benefits, and 4.6 percent for Part B, which covers physician and outpatient services.” Why? The high costs associated with expensive specialty drugs.

If there’s a nugget of hope in the report, perhaps it is this: Medicare receives funding from diverse pools, a combination of general revenues, payroll taxes and premiums paid by beneficiaries. Part A, the hospital insurance that is most worrisome to actuaries, is funded primarily by payroll taxes, while Part B physician services and Part D prescription drug are paid through general revenues and beneficiary premiums.

“Because the revenues needed to fund Part B and Part D program costs are set each year in advance, the trust fund for these parts of Medicare does not face a funding shortfall at any point in the future,” the brief concluded.

There is a caveat, however. Higher projected spending for benefits covered under Part B and Part D likely will require increases in both general revenue funding and beneficiary premiums.

This story was originally published February 5, 2017 at 10:35 AM with the headline "Study: Medicare isn’t going broke, but the repeal of affordable care act will add to burden."