Medicare’s long-term financing challenges

by delmeyer on 04/28/2020 8:07 PM

Since 1965, Medicare has played a vital role in providing health care benefits to nearly all Americans age 65 and older. The program, however, faces long-term sustainability challenges. Medicare spending will increase dramatically over the next few decades as the Baby Boomer population ages into the program and health spending per beneficiary grows. At the same time, the number of workers supporting each enrollee will shrink. As a result, benefit payments are expected to exceed payroll taxes, threatening solvency of one of its major trust funds. In addition, increases in Medicare spending will increase the pressure on beneficiary household budgets and the federal budget, potentially reducing the resources available for other needs.

Medicare’s Financial Challenges

Medicare provides a wide range of health care benefits that are financed through two trust funds. The Hospital Insurance (HI) trust fund supports Medicare Part A, which covers inpatient hospital care and post-acute care services such as skilled nursing facility care and home health care services. The Supplementary Medical Insurance (SMI) trust fund supports Medicare Part B—hospital outpatient care, doctor visits, lab tests, and medical supplies—and Part D prescription drug coverage.

A small share of Medicare beneficiaries accounts for a large share of Medicare spending. The most costly 5 percent of Medicare’s traditional fee-for-service (FFS) program beneficiaries account for 40 percent of Medicare FFS spending.[6] The most costly 25 percent of beneficiaries account for 82 percent of spending. The least costly 50 percent of beneficiaries account for only 5 percent of spending.

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Government is not the solution to our problems;
government is the problem.

– Ronald Reagan

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