Medicare’s 50 Year Check-Up Reveals Dark Prognosis

As the federal health care program known as Medicare turns 50, it is facing significant challenges in terms of effectiveness, expenditures, and sustainability. The New England Journal of Medicine (NEJM) reviewed some of the challenges facing Medicare and published a Health Policy Report setting out potential solutions to maintain the program’s effectiveness.   


In some respects, Medicare spending has seen recent success, for example, between 2009 through 2013, Medicare spending per beneficiary increased at a historically low annual rate of 1 percent, and, when accounting for inflation, spending actually decreased. However, the prospect of substantial increases in the Medicare beneficiary population present a risk of potentially disastrous fiscal pressure. According to the Annual Report of the Boards of Trustees of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund, “as the U.S. population ages, the number of people who are eligible for Medicare benefits will grow, from 52.3 million in 2013 to 81.8 million in 2030.” Accordingly, total Medicare spending is expected to increase from 3 percent of the nation’s gross domestic product (GDP) to 3.8 percent in 2030. Additionally, Medicare is expected to account for 15.8% of the federal budget in 2030 compared to the 14.4 percent that it represented in 2013.

Other Challenges

The NEJM suggests that Medicare is also faced with the same challenges that affect all of the health care industry, like quality and cost improvements. Additionally, the fragmented nature of the Medicare program provides unique challenges. Specifically, the structural complexity of Medicare, with its several parts and alternate coverage options, makes the program “confusing for beneficiaries and health care providers alike.” According to NEJM, the complexity hinders attempts to develop policies devoted to improved program performance.

Additionally, coverage gaps and financial barriers reduce access and quality for some beneficiaries. For example, according to the report, “data from a recent survey of elderly residents of 11 industrialized countries show that seniors in the United States are almost twice as likely as those in any other surveyed country to report that they have had problems during the past year in accessing health care because of costs.”

Payment Reform

One solution to Medicare inefficiencies is payment reform. Specifically, the NEJM report focuses on payment models that move away from fee-for-service payment and focus instead on payment systems that reward quality, coordination, and value, as opposed to complexity and volume. For example, Medicare has experimented with some alternatives including value-based purchasing, blended payments, and bundled payments.

ACA Reform

The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) took some steps in the direction of payment reform by requiring “Medicare to implement value-based purchasing across a broad set of providers, including physicians, hospitals, skilled nursing facilities, and home health.” Additionally, the ACA was responsible for encouraging the creation of organizations, known as accountable care organizations (ACOs), comprised of providers that are accountable for both the cost and quality of care. Medicare currently has two initiatives based upon ACOs that allow ACOs to share in “savings they produce as compared with the predicted costs that would have been accrued by Medicare patients in the ACO if they were treated in the usual system.”

Other Reforms

Some advocates of Medicare reform have encouraged premium support plans where Medicare beneficiaries would receive a subsidy that they could use to purchase health care either through a private plan or traditional Medicare. Critics of such proposals are concerned that Medicare beneficiaries lack the requisite information to make an informed choice regarding plans. Additionally, critics note that cognitive impairments—which are common among Medicare beneficiaries—stand to make informed decision making difficult. Also, there are concerns that private plans will have less power than traditional Medicare to alter provider behavior. Other reform alternatives consist of reorganizing the program by combining with Parts A, B and D into a single program with a single premium and one deductible. Whatever reforms are ultimately relied upon, the NEJM report warns that any solution will likely require new sources of revenue.