Medicare’s Impending Death Greatly Exaggerated, But Concerns Remain

Despite concerns about its impending doom, the financial outlook for the Medicare program has improved considerably from where it was 10 years ago.

That said, Medicare remains an extremely expensive program, Alicia Munnell and Anqi Chen, both of the CRR, noted in a research brief published last week.

“U.S. health care costs as a percentage of GDP are the highest in the developed world and nearly twice as high as the average of the countries in the Organization for Economic Cooperation and Development,” the authors wrote. “Differences in U.S. health costs are driven by relatively high salaries for doctors, high drug prices, high administrative costs, and greater usage of certain procedures. These broader market pressures make Medicare an expensive program.”


Medicare’s Part A Hospital Insurance (HI) program covers inpatient hospital services, skilled nursing facilities, home health care, and hospice care, and is primarily financed by a 2.9% payroll tax. According to a financial review by the Social Security and Medicare boards of trustees, the HI fund is projected to run out of funds by 2026.

But several factors played into that number, and any action taken by the government will affect the projections, Nicole Fallon, vice president of health policy and integrated services at LeadingAge, told Skilled Nursing News at the time.

Chen and Munnell examined these trends, noting that the trust fund depletion date moves around from year to year and that annual fluctuations in the depletion year give only a limited view of Medicare’s finances.


While Medicare’s finances are facing pressure from many fronts, the fact that the depletion date has changed gives only a limited look at them, they argued.

“In fact, the outlook for Medicare costs is considerably more favorable than it was a decade ago, and that picture persists even under the alternative projections that assume Congress phases out some of the cost controls in recent legislation,” Chen and Munnell wrote.

One of the issues, however, is that if costs stay the same and the fund is capable of only covering part of the costs of Medicare, Congress and whatever presidential administration is in power will be dealing with political pressure to make changes.

“Usually the most politically palatable solution, unfortunately, is reducing payments to providers,” Fallon said in June. “Another alternative is increasing Medicare beneficiary cost share.”

Given how easily providers could get their payments cut in such an environment, they have to stress how narrow their operating margins are, according to the American Health Care Association (AHCA). Clifton Porter, the executive vice president of government relations for AHCA, praised Congress for implementing a 2.4% Medicare market basket increase, but added that some legislators could see it as unnecessary.

“So 2.4% ain’t enough at the end of the day, but we have to protect against the perception that we’re overpaid,” he said at AHCA’s annual convention and expo in San Diego earlier this month.

Munnell and Chen also echoed this concern, observing that Medicare discussions are usually framed around the idea of the program being too generous.

“In fact, Medicare’s coverage is less comprehensive than most private sector insurance plans,” they wrote in the CRR issue brief. “For example, Medicare provides only limited mental health benefits and does not place an upper-bound on cost-sharing responsibilities for hospital stays, skilled nursing facility care, or physician costs. As a result, people with long and complicated illnesses could incur tens of thousands of dollars in out-of-pocket expenses.”

Written by Maggie Flynn

Companies featured in this article: