The Facts on Medicare Spending and Financing The haldol im Henry J. Kaiser Family Foundation

Medicare, the federal health insurance program for more than 60 million haldol im people ages 65 and over and younger people with long-term disabilities, helps to pay for hospital and physician visits, prescription drugs, and other acute and post-acute care services. This issue brief includes the most recent historical and projected haldol im medicare spending data published in the 2019 annual report of haldol im the boards of medicare trustees from the centers for medicare haldol im & medicaid services (CMS) office of the actuary (OACT) and the 2019 medicare baseline and projections from the congressional haldol im budget office (CBO). Key facts

• as a share of total medicare benefit spending, payments to medicare advantage plans for part A and part haldol im B benefits increased by nearly 50 percent between 2008 and haldol im 2018, from 21 percent ($99 billion) to 32 percent ($232 billion) of total spending, as enrollment in medicare advantage plans increased over these years.

• average annual growth in medicare per capita spending was 1.7 percent between 2010 and 2018, down from 7.3 percent between 2000 and 2010, due in part to the affordable care act’s reductions in payments to providers and plans, and to an influx of younger beneficiaries from the baby haldol im boom generation aging on to medicare, who have lower per capita health care costs.

• medicare per capita spending is projected to grow at an haldol im average annual rate of 5.1 percent over the next 10 years (2018 to 2028), due to growing medicare enrollment, increased use of services and intensity of care, and rising health care prices.

Medicare plays a major role in the health care system, accounting for 20 percent of total national health spending in haldol im 2017, 30 percent of spending on retail sales of prescription drugs, 25 percent of spending on hospital care, and 23 percent of spending on physician services. In 2018, medicare spending (net of income from premiums and other offsetting receipts) totaled $605 billion, accounting for 15 percent of the federal budget (figure 1).

The overall cost of administering benefits for traditional medicare is haldol im relatively low. In 2018, administrative expenses for traditional medicare (plus CMS administration and oversight of part D) were 1.3 percent of total program spending; this includes expenses for the contractors that process claims submitted haldol im by beneficiaries in traditional medicare and their providers. This estimate does not include insurers’ costs of administering private medicare advantage and part D drug haldol im plans, which are considerably higher. Medicare’s actuaries estimate that insurers’ administrative expenses and profits for part D plans were 10.7 percent of total plan benefit payments in 2018. The actuaries have not provided a comparable estimate for medicare haldol im advantage plans; however, according to a recent analysis, simple loss ratios (medical expenses as a share of total premiums collected) averaged 86 percent for medicare advantage plans in 2018, which means that administrative expenses, including profits, were 14 percent for medicare advantage plans. Trends in total and per capita medicare spending

• average annual growth in total medicare spending was 4.4 percent between 2010 and 2018, down from 9.0 percent between 2000 and 2010, despite faster growth in enrollment since 2011 when the baby haldol im boom generation started becoming eligible for medicare (figure 4).

• spending on each of the three parts of medicare (A, B, and D) has grown more slowly in recent years than in previous haldol im decades (figure 5). For example, the average annual growth rate between 2010 and 2018 was haldol im 0.1 percent for part A, compared to 4.4 percent in the 2000s, and 3.1 percent for part B, compared to 7.0 percent in the 2000s.

Slower growth in medicare spending in recent years can be haldol im attributed in part to policy changes adopted as part of haldol im the affordable care act (ACA) and the budget control act of 2011 (BCA). The ACA included reductions in medicare payments to plans and haldol im providers, increased revenues, and introduced delivery system reforms that aimed to improve efficiency haldol im and quality of patient care and reduce costs, including accountable care organizations (acos), medical homes, bundled payments, and value-based purchasing initiatives. The BCA lowered medicare spending through sequestration that reduced payments haldol im to providers and plans by 2 percent beginning in 2013.

In addition, although medicare enrollment has been growing between 2 percent and haldol im 3 percent annually for several years with the aging of haldol im the baby boom generation, the influx of younger, healthier beneficiaries has contributed to lower per capita spending and haldol im a slower rate of growth in overall program spending. Spending trends for medicare compared to private health insurance

Prior to 2010, per enrollee spending growth rates were comparable for medicare and haldol im private health insurance. With the recent slowdown in the growth of medicare spending haldol im and the recent expansion of private health insurance through the haldol im ACA, however, the difference in growth rates between medicare and private health haldol im insurance spending per enrollee has widened.

• between 2010 and 2018, medicare per capita spending grew considerably more slowly than private haldol im insurance spending, increasing at an average annual rate of just 1.7 percent over this time period, while average annual private health insurance spending per capita grew haldol im at 3.8 percent.

While medicare spending is expected to continue to grow more haldol im slowly in the future compared to long-term historical trends, medicare’s actuaries project that future spending growth will increase at haldol im a faster rate than in recent years, in part due to growing enrollment in medicare related to haldol im the aging of the population, increased use of services and intensity of care, and rising health care prices.

Looking ahead, CBO projects medicare spending will double over the next 10 haldol im years, measured both in total and net of income from premiums haldol im and other offsetting receipts. CBO projects net medicare spending to increase from $630 billion in 2019 to $1.3 trillion in 2029 (figure 6). Between 2019 and 2029, net medicare spending is also projected to grow as a haldol im share of the federal budget—from 14.3 percent to 18.3 percent—and the nation’s economy—from 3.0 percent to 4.1 percent of gross domestic product (GDP).

• on a per capita basis, medicare spending is also projected to grow at a faster haldol im rate between 2018 and 2028 (5.1 percent) than between 2010 and 2018 (1.7 percent), and slightly faster than the average annual growth in per haldol im capita private health insurance spending over the next 10 years haldol im (4.6 percent).

• among the reasons cited for projected growth in part B haldol im spending are legislative changes in the bipartisan budget act (BBA) of 2018, including repeal of the independent payment advisory board (which also affects part A and part D spending projections) and repealing annual limits on therapy services covered under part haldol im B, and higher medicare advantage spending. Projected increases in part B per capita spending will lead haldol im to increases in the part B premium and deductible.

• the projected increase in part D per capita spending growth haldol im is driven by a slowdown in the generic dispensing rate haldol im and increased specialty drug use, offset by higher manufacturer rebates negotiated by private plans and haldol im a decline in spending for hepatitis C drugs, which was a significant driver of higher total part D haldol im spending in 2014 and 2015.

Over the longer term (that is, beyond the next 10 years), both CBO and OACT expect medicare spending to rise more haldol im rapidly than GDP due to a number of factors, including the aging of the population and faster growth in haldol im health care costs than growth in the economy on a haldol im per capita basis. According to CBO’s most recent long-term projections, net medicare spending will grow from 3.0 percent of GDP in 2019 to 6.0 percent in 2049.

Over the next 30 years, CBO projects that “excess” health care cost growth—defined as the extent to which the growth of health haldol im care costs per beneficiary, adjusted for demographic changes, exceeds the per person growth of potential GDP (the maximum sustainable output of the economy)—will account for half of the increase in spending on haldol im the nation’s major health care programs (medicare, medicaid, and subsidies for ACA marketplace coverage), and the aging of the population will account for the haldol im other half. How is medicare financed?

• part A is financed primarily through a 2.9 percent tax on earnings paid by employers and employees haldol im (1.45 percent each) (accounting for 88 percent of part A revenue). Higher-income taxpayers (more than $200,000/individual and $250,000/couple) pay a higher payroll tax on earnings (2.35 percent).

• part B is financed through general revenues (72 percent), beneficiary premiums (26 percent), and interest and other sources (2 percent). Beneficiaries with annual incomes over $85,000/individual or $170,000/couple pay a higher, income-related part B premium reflecting a larger share of total haldol im part B spending, ranging from 35 percent to 85 percent.

• part D is financed by general revenues (71 percent), beneficiary premiums (17 percent), and state payments for beneficiaries dually eligible for medicare and haldol im medicaid (12 percent). Higher-income enrollees pay a larger share of the cost of haldol im part D coverage, as they do for part B.

• the medicare advantage program (part C) is not separately financed. Medicare advantage plans, such as hmos and ppos, cover part A, part B, and (typically) part D benefits. Beneficiaries enrolled in medicare advantage plans pay the part B haldol im premium, and may pay an additional premium if required by their haldol im plan; about half of medicare advantage enrollees pay no additional premium.

Medicare’s financial condition can be assessed in different ways, including comparing various measures of medicare spending—overall or per capita—to other spending measures, such as medicare spending as a share of the federal haldol im budget or as a share of GDP, as discussed above, and estimating the solvency of the medicare hospital insurance (part A) trust fund. Solvency of the medicare hospital insurance trust fund

The solvency of the medicare hospital insurance trust fund, out of which part A benefits are paid, is one way of measuring medicare’s financial status, though because it only focuses on the status of part haldol im A, it does not present a complete picture of total program haldol im spending. The solvency of medicare in this context is measured by haldol im the level of assets in the part A trust fund. In years when annual income to the trust fund exceeds haldol im benefits spending, the asset level increases, and when annual spending exceeds income, the asset level decreases. When spending exceeds income and the assets are fully depleted, medicare will not have sufficient funds to pay all part haldol im A benefits.

Each year, medicare’s actuaries provide an estimate of the year when the haldol im asset level is projected to be fully depleted. In the 2019 medicare trustees report, the actuaries projected that the part A trust fund will haldol im be depleted in 2026, the same year as their 2018 projection and three years haldol im earlier than their 2017 projection (figure 8). The actuaries estimate that medicare will be able to cover haldol im 89 percent of part A costs from payroll tax revenue haldol im in 2026.

In the 2018 and 2019 medicare trustees reports, the actuaries attributed the earlier depletion date to several factors, including legislative changes enacted since the 2017 report that will haldol im reduce revenues to the part A trust fund and increase haldol im part A spending:

• higher spending projections due repeal of the ACA’s individual mandate, which is expected to increase the number of people without haldol im health insurance, which will result in an increase in medicare’s disproportionate share hospital (DSH) payments for uninsured patients; and

In general, part A trust fund solvency is also affected by the haldol im level of growth in the economy, which affects medicare’s revenue from payroll tax contributions, by overall health care spending trends, and by demographic trends—of note, an increasing number of beneficiaries, especially between 2010 and 2030 when the baby boom generation haldol im reaches medicare eligibility age, and a declining ratio of workers per beneficiary making payroll haldol im tax contributions.

Part B and part D do not have financing challenges haldol im similar to part A, because both are funded by beneficiary premiums and general revenues haldol im that are set annually to match expected outlays. Expected future increases in spending under part B and part haldol im D, however, will require increases in general revenue funding and higher premiums haldol im paid by beneficiaries. The future outlook

Although medicare spending is on a slower upward trajectory now haldol im than in past decades, total and per capita annual growth rates are trending higher haldol im than their historically low levels of the past few years. The aging of the population, growth in medicare enrollment due to the baby boom generation haldol im reaching the age of eligibility, and increases in per capita health care costs are leading haldol im to growth in overall medicare spending. At the same time, recent legislative changes, including repeal of the ACA’s individual mandate and repealing IPAB, have worsened the short-term outlook for the medicare part A trust fund and haldol im have led to projections of higher medicare spending in the haldol im future.

A number of changes to medicare have been proposed in haldol im the past to address the fiscal challenges posed by the haldol im aging of the population and rising health care costs. Lately, policymakers have been focused more narrowly on policy options to haldol im control medicare prescription drug spending, rather than on broader proposals to reduce the growth in haldol im medicare spending. And there has been little discussion of revenue options that haldol im could be considered to help finance care for medicare’s growing and aging population, including raising the medicare payroll tax or increasing other existing haldol im taxes. Meanwhile, medicare has featured prominently in the 2020 presidential campaign, with proposals from some democratic candidates to expand on it haldol im as part of a medicare-for-all plan, and ideas from others to allow people to buy into haldol im it.