Medicare Staying Power

One of the biggest concerns stemming from the exponentially rising cost of health care has been the long term funding for Medicare.  Many have predicted that if U.S. health care spending continues to rise, Medicare may not be around when the children of the Baby Boomer generation reach the age of eligibility (65 years old).

To understand the budget concerns surrounding Medicare, it is important to understand how Medicare receives its funding.  Medicare is funded primarily from three sources: general revenues (40%), payroll tax contributions, (38%), and beneficiary premiums (13%).  In particular, Part A, Hospital Insurance, is mostly funded by tax dollars of working Americans.  At the time of its inception, a 2.9% on all wage earners was used to fund the entitlement program. Now, the ACA calls for a 3.8% tax on all dollars made over $250,000 per family.  Solvency of this program will be greatly affected by the state of the economy -- meaning, the number of working Americans and their salaries.

The problem is that between now and 2024, the Baby Boomer generation is going to become eligible for Medicare, which means that the ratio of workers per beneficiary making payroll contributions will decline. However, over the weekend, the biggest health care story was that due to our improving economy and slowed health cost growth, projections for the depletion of Medicare's trust fund have already been extended by two years to 2026.  It doesn't curb all worries for the program's sustainability, but after only a few short years since the enactment of the ACA, it's a step in the right direction.

Here are the changes that have been made so far to help lower Medicare spending and increase its staying power:

• The creation of the Independent Advisory Board: a 15-member U.S. Government agency specifically tasked with achieving specified savings without affecting coverage or quality of care. Congress can, however, override the Board's decisions, but otherwise all Board savings decisions receive fast-track implementation.
• Hospitals will no longer receive Medicare reimbursement payments for the readmission of patients for the same ailment that landed them in the hospital in the first place.
• The Medicare Shared Savings Program: like Accountable Care Organizations (ACOs), these programs strive to coordinate care and encourage investment in infrastructure and redesigning of care with the aim of lowering overall costs.

Numerous other improvements can be made to slow the growth of health care costs:

• Means testing for benefits
• Palliative care mandates
• Prohibitions on certain types of new entrants to Medicare 
• Mandates on drug price negotiation and utilization of generics
• Outcome-based reimbursement for providers (hospitals, physicians, & nurse practitioners)
• Changing the age of Medicare eligibility by two years
• Changing the way cost of living adjustments are made