Top 5 Things To Know | Long-Term Medicare Program Costs

On Monday, the Mercatus Center released an analysis of the long-term cost projections of the Medicare Program found in this years’ trustees report. The think tank examined total Medicare costs, Medicare Part B expenditures, Medicare Hospital Insurance (HI) expenditures and Medicare Part D expenditures. All analyses were conducted using current law assumptions, a “baseline projection” and an “alternative to baseline” projection. The alternative to baseline scenario assumes that some controversial provisions of the Affordable Care Act (ACA) are scaled back. Today’s Top 5 Things To Know will take a further look at the Mercatus report.

1.  Under Current Law, Medicare Costs Will Climb To 6.26 Percent Of GDP By 2080. According to the report, the first chart shows “that current law projections predict Medicare costs will be 6.26 percent of GDP in 2080.” However, the Trustees acknowledge that current law assumptions most likely understate the cost and baseline projections are more realistic.

2.  Total Costs, When Accounting For Assumptions, Vary Greatly. As noted in the report, “As the first chart shows, Medicare cost projections vary considerably in the long run, depending on the assumptions. A difference of one percentage point of GDP between calculations can yield enormous divergences in realized costs … In the alternative to the baseline, total Medicare costs climb to 8.09 percent of GDP by 2080. In other words, total projected Medicare costs are on track to rise faster than GDP. If lawmakers continue to override the physician payment formula and decline to cut physician reimbursement, total Medicare costs will be substantially higher than projected in the long run under current law.”

3.  By 2080, Spending On The Medicare Part B Program Will Range Anywhere From 2.47 Percent Of GDP To 3.16 Percent Of GDP.  As shown in Chart 2, under current law spending for the Medicare Part B program will increase from about 1.5 percent of GDP in 2013 to 2.56 percent of GDP by 2080. According to the report, “for the projected baseline, Part B almost doubles as a share of GDP between 2020 and 2080, growing from 1.62 percent of GDP in 2020 to 3.09 percent of GDP by 2080. In alternative baseline scenario, Part B is expected to reach 3.16 percent of GDP by 2080.”

4.  By 2080, Spending For The Medicare HI Fund Will Represent At Least 2.38 Percent GDP. According to the report, “The third chart displays cost projections for Medicare Hospital Insurance (HI). Under current law, HI costs are projected to increase from 1.56 percent of GDP in 2013 to 2.38 percent in 2080.” However, the HI fund is projected to run out of funds in 2030, four years later than previously expected, and “without an adequate trust fund balance, payouts will be limited to what the program collects by itself (Medicare HI also gets some income from premiums and from payments by states), which will result in sharp curtailment of payments.”

5. In Terms OF Spending For The Medicare Part D Program, There Will Be Little Difference In The Various Projections. When looking at the other programs, there is only a small difference in scenarios for the Medicare Part D Program. Mercatus fellow and Trustee, Charles Blahous, explains this is because “payments for physician services (Part B) as well as prescription drugs (Part D) are made from Medicare’s Supplementary Medical Insurance (SMI) trust fund ($317 billion spent in 2013). SMI is kept solvent by statutory design; only about one-quarter of its revenues are provided by beneficiary premiums, the other three-quarters provided from the government’s general fund in whatever amounts are necessary to finance benefits.”

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