KFF offers facts about Medicare spending

As the new Administration and Congress consider changes to federal health care programs, including Medicare, a Kaiser Family Foundation (KFF) issue brief offers spending facts about the program, which currently accounts for roughly $1 of every $7 in federal spending. The brief indicated that repealing the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) would increase spending and worsen the program’s long-term financial outlook, but noted that Medicare faces challenges apart from ACA repeal, including higher health costs and an aging population.

Although the program faces financial challenges, KFF noted that Medicare “isn’t going broke.” The Hospital Insurance Trust Fund, which pays for Part A benefits, primarily through payroll taxes, is expected to pay for full insurance benefits until 2028, at which point it will be able to pay for 87 percent of hospital benefits. Part B physician services and Part D drug benefits, however, are paid for through a combination of general revenues and beneficiary premiums and are set only a year in advance. As a result, they are not subject to a funding shortfall, but higher projected spending would increase the amount of general revenue funding and beneficiary premiums required to cover costs. Spending on Part benefits is expected to rise faster than spending on benefits paid for under Parts A and B, with per-capita spending expected to rise 5.8 percent for Part D between 2015 and 2025, compared to 3.2 percent for Part A and 4.6 percent for Part B.

The aging U.S. population is resulting in higher Medicare spending. For example, the number of people over age 65 is expected to double from 2010 to 2050 from 40 million to 84 million, while the number of people over 80—who account for a disproportionate share of Medicare spending—is expected to nearly triple, from 11 million to 31 million. Medicare spending accounted for 15 percent of the federal budget in 2016, and is expected to increase to 18 percent of the federal budget, accounting for $1 in every $6 spent, by 2027. Average annual growth in spending is expected to increase more quickly between 2015 and 2025—at a rate of 7.1 percent—than it did immediately after the ACA was enacted between 2010 and 2015, when it increased at a rate of only 4.4 percent.

ACA provisions reducing payments to providers and Medicare Advantage (Part C) plans reduced overall spending growth from 9 percent between 2000 and 2010 to 4.4 percent between 2010 and 2015. KFF cited a Congressional Budget Office (CBO) report and stated that ACA repeal would add $802 billion to Medicare spending through 2025; KFF opined that repeal would lead to higher deductibles, premiums, and cost sharing for beneficiaries and would hasten the insolvency of the Hospital Insurance Trust Fund (see Repealing the Affordable Care Act—an unaffordable idea?, Health Law Daily, June 24, 2015). With the ACA in place, KFF reports that net Medicare spending is projected to grow from 3.2 percent of the gross domestic product (GDP) in 2016 to 5.7 percent of the GDP in 2046; prior to the ACA, net Medicare spending was projected to account for 8.5 percent of the GDP in 2046.

Fed big spender, as prescription drugs drive increases

U.S. health care spending in 2015 grew by 5.8 percent, reaching $3.2 trillion; on a per capita basis, spending on health care increased 5 percent to $9,990, according to researchers at the Office of the Actuary at CMS in a new National Health Expenditures report. As a result, the share of gross domestic product devoted to health care spending was 17.8 percent in 2015, up from 17.4 percent in 2014. CMS noted that although millions of people gained coverage in part to the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), per-enrollee spending growth in private health insurance and Medicare continued to be well below the average in the decade before passage of the ACA.

In 2015, the federal government accounted for the largest share of health care spending (29 percent), followed by households (28 percent), private businesses (20 percent), and state and local governments (17 percent). Hospital care accounted for the most spending based on type of service or product at 32 percent with physician and clinical services at 20 percent.

Retail prescription drug spending continued to grow faster than the overall spending growth, increasing 9 percent to $324.6 billion. Although the growth in 2015 was slower than the previous year, spending on prescription drugs still outpaced all other services in 2015.

Spending numbers 

Overall, private health insurance expenditures, which amounted to 33 percent of total health care spending, reached $1.1 trillion in 2015, and increased 7.2 percent in 2015. The faster rate of growth reflected increased enrollment in private health insurance associated with coverage expansions under the ACA, and a notable increase in the enrollment in employer-sponsored plans.

Medicare spending, which amounted to 20 percent of total health care spending, grew 4.5 percent to $646.2 billion in 2015, which was a slight deceleration from the 4.8 growth percent in 2014. The slightly slower growth in 2015 was largely attributable to slower growth in Medicare enrollment, which increased 2.7 percent to 54.3 million beneficiaries following 3.1 percent growth in 2014.

Medicaid spending, which accounts for 17 percent of total health care spending, slowed slightly in 2015 to 9.7 percent, but continued the growth that began in 2014 (11.6 percent). State and local Medicaid expenditures grew 4.9 percent while Federal Medicaid expenditures increased 12.6 percent in 2015. The latter increase was attributed to newly eligible enrollees under the ACA.

Out-of-pocket spending grew 2.6 percent in 2015 to $338.1 billion, slightly faster than the growth of 1.4 percent in 2014.