The Washington Post reported that President Trump’s proposed budget for 2019 includes “$266 billion in cuts to Medicare, which provides health insurance to 58 million Americans 65 and older and people with certain disabilities.” While the administration’s budget plan isn’t expected to receive much attention in Congress, it does highlight the growing attention policymakers are paying to the growing cost of Medicare.
Medicare has become one of the biggest drivers of federal government spending. A major driver of Medicare’s cost is the overall increase in health care costs which are projected to grow at a rate 1 percent faster than the overall economy between 2017 and 2026, according to the Centers for Medicare and Medicaid Services.
Medicare, though, is growing even faster. CMS calculates that Medicare spending grew 3.6 percent to $672.1 billion in 2016, or 20 percent of the total amount the country spends for health. And, says CMS, spending on Medicare between now and 2026 is projected to increase by 7.4 percent per year, significantly faster than increases in overall health care spending.
The future of Medicare has huge implications for Minnesota. According to the Minnesota Department of Health, about one in every six Minnesotans – 16.7 percent – is covered by Medicare. While Minnesota’s cost-efficient health system does a good job of managing Medicare spending – the cost per beneficiary in Minnesota is $7,721 or 9.4 percent less than the national average – trend lines are not promising. Between 2007 and 2014, actual per capita costs in Minnesota grew by 26.5 percent or more than twice the 11.6 percent national increase.
The good news is that Minnesota Medicare beneficiaries have significantly lower rates of high cholesterol, high blood pressure and coronary heart disease than the national average. Because those with chronic health conditions spend eight times as much on health care as people without chronic conditions, according to the Minnesota Department of Health, keeping Medicare beneficiaries healthy is a critical cost-saving measure.
There is no earnings cap for the Medicare tax. An employer and employee is each taxed 1.45 percent on a worker’s entire wages. And, above $200,000 in wages (for an individual), and an additional .9 percent is withheld for Medicare taxes.
The rising cost of health care, longer life spans and more chronic illnesses are contributing to a severe underfunding of Medicare. According to a study by the Urban Institute, a two-earner couple with a work history of average wages will receive $244,000 more in benefits than they paid in taxes if they retired in 2010. But because the cost of health care is rising so rapidly, that same couple retiring in 2030 would receive $379,000 more in benefits than they paid in taxes.
Several proposals have been floated to fix Medicare’s funding problem. Although the solutions vary – often driven by political ideology – they typically include one or more of the six proposals outlined in a July 2017 CBS “Moneywatch” segment:
- Increase payroll taxes current workers pay to the (Hospital Insurance) Trust Fund to support Part A benefits (Part A covers hospital care).
- Increase income taxes paid to the general federal fund to support benefits paid for Parts B and D. (Parts B and D cover doctor visits and prescription drugs.)
- Increase premiums retirees and beneficiaries pay for Parts B and D.
- Increase deductibles and co-payments retirees and beneficiaries pay for Parts A, B and D.
- Improve efficiency in the medical care delivery system, so that it takes less money to care for retirees and beneficiaries. Often this involves implementing incentives to use efficient providers and disincentives to use inefficient providers.
- Improve the health of retirees and beneficiaries.
Two other proposals often mentioned include raising the age for eligibility and “means-testing” the benefits – the wealthier are eligible for fewer benefits.
As the Moneywatch segment acknowledged, “None of these steps will be easy or popular. The harsh reality is that everybody will feel the negative consequences of any solution to Medicare’s funding challenges.”