Political Issue: Medicare Solvency

With election season heating-up, I’m going to drop some posts in from time to time on health policy issues that candidates SHOULD be talking about – not that they will. The issues I will put forth are the biggies, not the trivial stuff that campaigns and parties use as talking points (e.g., improving Obama Care, lowering drug costs, etc.).

Looking back, it’s hard to believe that this Blog has been around since Barack Obama’s first election and the policy engine around health care reform (now that was a big policy position). Readers can search the site or troll the site for various articles since Obama 1, Obama 2, Trump 1, etc.

The U.S. spends more on health care than the GDP of all other world nations save 2 – China and Japan. This next year, we will eclipse Japan. Shorthand: U.S. spending just on health care exceeds the total economic output/economic value of France, Germany, Canada, Mexico, etc. Today, this amount is in excess of $4.5 trillion dollars. By comparison, the GDP of Canada is $2 trillion. A visual on where the money is spent and the sources for spending is available here: Nations Health Dollar (1)

Since 2000, spending on health care in the U.S. has grown by 329% (2021 final year). Across the same period, the U.S. population grew 117%. Spending has grown nearly 3 times as fast as the population growth. As a percentage of GDP, health expenditures equated to 13.3% in 2000 and today, over 18.5%. A historical summary of health expenditures from 1960 to 2021 is available here: Historical | CMS

Medicare spending as an element within all national health expenditures continues to grow.  Its pace of growth is a function of population demographics which illustrate that the U.S. is in general, an aging society.  Every citizen is entitled to Medicare health coverage at the attained age of 65. Citizens that become permanently disable can also qualify for Medicare coverage.  In 2022, 65 million people were covered by Medicare with 57 million being age 65 or older. Of the people covered, 46% participated in Medicare Advantage plans (private insured contracts that receive capitated payments from Medicare to offer Medicare coverage and other related benefits).

Financing for Medicare remains the biggest challenge with regard to solvency.  The largest source of funds for the program is government contributions (tax dollars from general funds) – $423 billion (2022).  Payroll taxes (Medicare withholding) equates to $353 billion and premiums from Part B and Part D, equate to $154 billion. In 2022, 2.7 people paid taxes supporting Medicare for every one beneficiary (182 million working vs. 66 million beneficiaries). This ratio continues to degrade (fewer working vs. beneficiaries).

From a health policy standpoint, addressing the structural funding issues of Medicare is critical. It is the second largest entitlement program in the federal budget, behind Social Security.  With increasing interest cost on federal debt (deficit financed), the overall budget constraints make it more difficult to subsidize Medicare program shortfalls with general revenue tax dollars. 

Under the Medicare Office of Actuary analysis, using intermediate assumptions regarding beneficiary growth, utilization, etc., the Hospital Insurance (Part A) portion of Medicare trends negative. Part B (supplemental side for outpatient, physician expenditures) always runs negative in terms of expenditures being greater than premium intake.  General tax revenue subsidizes the difference.  In terms of growth, the Part B side of Medicare and the Part D prescription drug side, outpace expenditure growth (significantly) compared to the Part A side. the full report 2023 Medicare Trustee’s Report is available here: Medicare Trustee Report 2023

The policy questions for candidates are numerous and frankly, difficult.  I would love to see these questions put to each candidate as fundamentally, the solvency of Medicare should be priority for a Chief Executive (President).  Health care spending should also be a priority given its weight on the economy and the financing challenges presented from Medicare and Medicaid.  Below are the questions I believe each candidate should address.

1. What measures will you undertake to improve the solvency of the Medicare program?
2. Given a languishing economy and lackluster GDP growth outlook current, what measures economically, can you take to bolster the economy and reduce interest costs?
3. What economic or policy reform steps do you believe the U.S. should take to slow the growth of health care spending in the U.S.?  Be specific, please.
4. Should government take a larger role in financing and paying for health care (aka Medicare for all) or should more focus be shifted to alternative, private industry options?

Below is a snapshot of Medicare finances from a reporting perspective (sources of funds, uses, etc.). Note the highlight.  Medicare Part A premiums are payroll taxes.  Medicare Part B is financed by premiums charged to beneficiaries AND general tax dollars or in the case current, more government debt. Part B does not take in enough revenue to support its outlays. Effectively, Part B expenditures today are deficit funded via increased government debt.