In a new report on Medicare spending and financing, Kaiser Family Foundation said Medicare made up 15% of total federal spending in 2017 and that is expected to grow to 18% by 2028.
The Medicare Part A trust fund will be depleted by 2026, which is three years earlier than KFF’s 2017 projection.
Payments to Medicare Advantage (MA) plans for Part A and Part B benefits almost doubled between 2007 and 2017 from 18% ($78 billion) to 30% ($210 billion).
Medicare benefit payments have skyrocketed over the past decade. Payments totaled $425 billion in 2007 and grew to $702 billion in 2017.
However, the pace of Medicare per capita spending slowed. Between 2010 and 2017 the average annual growth in Medicare per capita spending was 1.5% compared to 7.3% between 2000 and 2010. KFF said the lower growth rate came from the Affordable Care Act’s lower provider and plan payments, as well as the influx of healthier baby boomers aging into Medicare.
In comparison, the report found that private health insurance spending growth increased by 3.8% in seven years. This percentage is not better than Medicare, but does show an improvement over the previous decade, which likely points to payers using benefit design, prior authorization, alternative payment contracts, cost-cutting policies and other levers to bend the cost curve.
KFF predicted that Medicare per capita spending will increase in the coming years. The report predicted Medicare per capita spending will grow to an average annual rate of 4.6% over the next decade as Medicare enrollment continues to grow. Other factors include rising healthcare prices and the increased use of services and intensity of care.
Recent congressional action, such as repealing the ACA’s individual mandate penalty and shuttering the Independent Payment Advisory Board, has hurt Medicare Part A trust fund’s short-term outlook and will lead to higher Medicare spending, the report said.
KFF noted that proposals to address the Medicare spending and funding issues, such as restructuring benefits and putting more costs on individuals, cannot alone solve the long-term financial challenges. The report said national leaders should consider revenue options, including increasing the Medicare payroll tax and other taxes.
Of course, any talk about issues with Medicare funding will worry doctors, who often feel the brunt of payment cuts and benefit changes. Doctors already feel the pain from payment cuts this decade and may next find their Medicare payments need to pay for more services. This may mean an increase in uncompensated care and bad debt if Medicare beneficiaries face more out-of-pocket costs.
Medicare already pays less than private payers. Cost-shifting, or hospitals making up for lower public payer reimbursements by negotiating higher payments from private insurers, is one way hospitals have made up for the lower public insurance payments. A recent National Bureau of Economic Research report on cost-shifting found that Affordable Care Act cost containment strategies resulted in hospitals negotiating 1.5% higher average private payer reimbursements to offset the cuts from public payers.
If hospitals and providers feel the pain of further Medicare cuts, you can expect to see health systems continuing to look at other ways to gain leverage in negotiations with private payers, such as both horizontal and vertical merger deals.