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New Medicare Cost Growth Estimates Paint Concerning Financial Picture

July 06, 2018

The Kaiser Family Foundation has released a new, updated resource, which provides detailed information relating to trends in Medicare benefit payments, Medicare spending projections, and an assessment of Medicare’s financial condition and future outlook. The Facts on Medicare Spending and Financing includes the most recent historical and projected Medicare spending data published by the Centers for Medicare & Medicaid Services (CMS) Office of the Actuary and the 2018 Medicare baseline projections from the Congressional Budget Office.

Nationwide, Medicare covers more than 59 million individuals ages 65 and older—regardless of their income and health status—and young individuals with permanent disabilities. Medicare Part A covers care associated with inpatient hospital or skilled nursing facility stays, as well as hospice care. Medicare Part B covers outpatient services, preventive care, mental health care, and medical equipment.

Most notably, the issue brief reports that Medicare’s actuaries project that the Medicare Hospital Insurance (Part A) trust fund will be depleted during 2026, three years earlier than the projection Kaiser offered in its 2017 report.

Actuaries attribute this earlier depletion date to several factors, including:

  • Lower revenue projections as a result of tax cut legislation enacted during December 2017
  • Higher-than-expected spending for Part A benefits during 2017
  • Higher spending projections due to the repeal of the ACA’s individual mandate
  • Higher spending projections due to the repeal of Medicare’s Independent Payment Advisory Board, which would have helped control spending if growth rates exceed certain levels

The issue brief also reports that:

  • Medicare spending was 15 percent of total federal spending during 2017, and is projected to rise to 18 percent by 2028
  • As a share of total Medicare spending, payments to Medicare Advantage plans for Part A and Part B benefits increased from 18 percent during 2007 to 30 percent during 2017
  • Average annual growth in Medicare per capita spending was 1.5 percent between 2010 and 2017, but is projected to grow at an annual rate of 4.6 percent during the next ten years. This is due to growing enrollment, increased use of services and intensity of care, and rising health care prices

It is important to note that the total percentage of Medicare spending for Part A benefits (mainly hospital inpatient services) decreased from 47 percent during 2007, to 42 percent during 2017. During the same time, spending on Part B benefits (mainly physician services and hospital outpatient services) increased from 41 percent to 44 percent, and spending on Part D prescription drug benefits increased from 11 percent to 14 percent.

These findings mirror Pennsylvania-specific trends that show the growth in outpatient utilization and drug costs relative to inpatient hospital utilization. Since 2008, Pennsylvania hospitals have seen a 17 percent decrease in inpatient days per 1,000 population. A 2016 Kaiser Family Foundation analysis found that during 2014, nearly two million Pennsylvanians (approximately 15% of the state’s population) were enrolled in Medicare.

HAP’s policy and legislative advocacy priorities include ensuing that Pennsylvanians continue to access affordable, high-quality health insurance. HAP will continue to monitor proposals that could impact the future of Medicare coverage.

For more information about this study, contact Phillip Burrell, HAP’s director, research and data analytics, or Jeff Bechtel, JD, senior vice president, health economics and policy.

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