Overview of Medicare Spending

Overview of Medicare Spending

Annual reports show the most recent and upcoming overview of Medicare Spending data. These reports show the inflation of enrollees and how it affects health care prices.

Annual Reports consist of the Boards of the Office of the Actuary (OACT), the Centers for Medicare & Medicaid Services (CMS) Trustees, and the 2019 baseline. Also, it includes projections from the Congressional Budget Office (CBO).

An Overview of Medicare Spending Overview of Medicare spending

Medicare is a significant portion of the country’s health care system. Also, this program made up 20% of the total national health spending in 2017.

The expense of retail sales of prescription drugs was 30%. Hospital care spending made up 25%; doctor office services were 23% of expenditures.

The program’s spending in 2018 total came to $605 billion – which is 15% of the federal budget — calculating this number by the income from offsetting receipts and premium costs.

Over ten years, benefit payments, and each part of Medicare saw an increase in numbers. In 2008, the benefit payments total amount was $462 billion; as of 2018, that number’s up to $731 billion.

Part A spending for inpatient hospital services is down to 41% (it was at 50%). Then, Part B went up to 46% (from 39%), and spending on Part D went up from 11 to 13%.

Overview of Medicare Advantage Spending

Medicare Advantage plans have seen a substantial shift in payments to previous Medicare Advantage plans. These policies make up part of the total percent of benefit spending.

Part A and B benefits under Medicare Advantage plans saw an almost 50% increase from 2008 to 2018. There’s no denying the inflation of private plan enrollees over the last ten years. From 21% – $99 billion to 32% which is $232 billion.

Beneficiaries with Medicare Advantage plans made up 34% of all Medicare beneficiaries in 2018. Ten years ago (2008), only 22% of recipients had MA plans.

In both overall and per beneficiary, spending has seen a significant reduction in growth – comparing to earlier decades.

Average annual growth was 4.4% from 2010 to 2018; that’s less than the years 2000 to 2010 at 9%. Opposite to the increase in enrollees since 2011 when the Baby Boomers started reaching Medicare eligibility.

Spending per capita went down from 7.3% from 2000-2010; the average annual grown in spending was only 1.7% between 2010-2018. Parts A, B, and D have been increasing much slower in more recent years than before.

On average, from 2010 to 2018, the annual growth rate was 0.1% – Part A, and 3.1% for Part B. In the 2000s, those numbers were 4.4% for Part A and 7.0% for Part B.

Possibly due to the policy changes brought on by the Budget Control Act of 2011 (BCA) and the Affordable Care Act (ACA), although Medicare enrollment has seen only 2-3% annually over the last few years.

However, the inflation of younger, more healthy beneficiaries and the Baby Boomer generation nearing retirement spending per capita is down. Growth in the program’s overall expenditure is down.

Overview of Medicare Spending Projections

Predictions are that Medicare’s future spending growth is going to increase at a much faster rate than we’ve seen this decade.

The Baby Boomers are moving into retirement, and as they become eligible, the use of services increase. As we use more services, and the intensity of care increases, health care prices go up.

Spending totals are likely to double over the next ten years, as the Congressional Budget Office (CBO) projects. We’re looking at numbers like $1.3 trillion in Medicare spending in the year 2029.

Long-term Spending Projections

Looking beyond the next ten years, CBO and OAC believe spending rises much faster than GDP. The potential GDP is the highest maintainable production of the economy.

Factors include the population of aging adults, more rapid growth in health care expenses than growth in the economy on a per person premise. It is increasing spending on the country’s big health care programs like Medicare and Medicaid.

Half of the increase in spending is on these programs, while the other half is the growing population of newly eligible seniors.

The most recent overview, a 2019 long-term projection, according to CBO, Medicare spending increases from 3% of GDP to 6% in 2049.

Funding Medicare

Premiums fund 15% of Medicare, general revenues support 43%, and payroll taxes support the other 36% of the national health care program.

Part A is funded mostly through the 2.9% tax on wages, from employers 1.45%, and employees 1.45%. These funds make up 88% of Part A funds.

Taxpayers with higher incomes ($200,000/single and $250,000/couple) fall in a higher payroll tax, 2.35% on wages.

26% of premiums finance Part B. Like Part A, beneficiaries with higher annual incomes pay an IRMAA, which is higher than the average premium.

Costs show a larger share of total Part B spending, ranging from 35-85% and affecting only individuals with incomes over $85,000 or couples with $170,000+ salary.

General revenues finance 71% of Part D. State payments for beneficiaries dually eligible fund 12% of Part D.

Although, beneficiary premium amounts finance 17% of these policies. Again, higher-income beneficiaries pay the larger share of the cost for Part D coverage.

Advantage plans cover the same benefits as Part A, B, and  D. Beneficiaries pay the Part B premium as well as the plan premium. However, nearly half of the Medicare Advantage plan holders have no additional monthly cost.

You pay Part B premium, and Medicare transfers claim responsibility to the insurance company instead. The insurance company receives a portion of your Part B premium in exchange for handling your claims and benefits.

Future Overview of Medicare Spending

The future of Medicare spending should increase as the Baby Boomer generation moves into retirement.

Policymakers must confront Medicare’s growing spending costs to maintain financial stability over time. The nation’s health care program has seen some changes; reforms are necessary for long-term success.

In 2018, Medicare spent $741 billion. CMS predicts that number to rise over time, at a much faster rate than in previous years.

CMS Trustees are issuing a Medicare funding warning after last year’s reports. This warning requires the President to give a response to Congress about the issue.

This response is due no later than 15 days following the Fiscal Year 2021 Budget submission.

Congress must consider the legislation suggestions quickly. As it stands, this is the 3rd year in-a-row that an excess general revenue Medicare funding has been made public.

Likewise, this is the 2nd year in-a-row for issuing a funding warning. Policymakers need a balance of cost concerns while defending the health and welfare of our senior citizens.

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