Medicare’s Financial Status – An Overview

July 3, 2017

insurance

Introduction

Medicare is the federal program introduced in 1965 to provide health insurance benefits to Americans ages 65 and above as well as to certain younger disabled enrollees.  It, along with Social Security and Medicaid, is one of the “Big 3” Federal entitlement programs.  In 2015, Medicare payments totaled approximately $635 billion, and represented roughly 15% of the federal budget.

Medicare’s financial status is overseen by a Board of Trustees that report annually to Congress.  They provide both a short and long-term projection of the program’s viability.  Numerous factors influence this analysis, such as estimating the impact of an aging population, forecasting the growth or lack of growth in the economy, predicting the effects of changing medical technologies and increases in the availability of high cost specialty drugs.  The Trustees estimate that Medicare expenditures will roughly double to $1.3 trillion in 2025, and the Part A Health Insurance fund will become insolvent in 2028, meaning program revenue will be insufficient to cover anticipated expenses at that time.

 

How is Medicare Financed?

Medicare is primarily financed from three sources:  42% is from US Treasury general revenues, 37% from payroll taxes, and 13% from enrollee premiums, with the remainder from miscellaneous sources.  This is known as the aggregate program breakdown.  The breakdown among the various Medicare components, Parts A, B, C and D vary significantly.  Numerous proposals have been put forth to address Medicare’s financial stability.  Examples include:  restructuring benefits and cost sharing arrangements, increasing Medicare premiums, particularly for higher income enrollees, raising Medicare’s eligibility age (currently 65) and shifting the program to a premium support system.  This aims to reduce the growth in Medicare spending by increasing competition among health plans and providing incentives for enrollees to be more cost conscious in their plan selection.

 

What to look for in the future

Medicare is an integral part of our country’s healthcare system.  It’s hard to imagine any American being unaware of the national debate that healthcare has become over the past seven years.  Although it has not been singled out in the current “repeal and replace” legislation, changes will be necessary to address Medicare’s solvency issue mentioned earlier.  Ultimately, some combination of reducing expenditures or increasing revenues will be necessary to maintain the financial soundness of the program.  The long-term Trustee report estimates that over the next 75 years the revenue spending gap will exceed an eye popping $3.6 trillion.   Notably, Medicaid and Social Security each have financial challenges that exacerbate the federal deficit issue.  While the difficult choices affecting Medicare financing are still unknown, few question the importance of carefully deliberating ways to bolster the Medicare program for today’s beneficiaries and for the growing number of people who will depend on Medicare in the future.

 

For more information

Mike Curtiss at Vrabec Insurance is solely devoted to the Medicare insurance market.  Visit our website (www.vrabecinsurance.com) to see the blog of relevant Medicare topics.  Contact Mike at 317-939-2144 or by email at mike@vrabecinsurance.com to discuss your specific questions.


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