Is Medicare Running Out of Money?

Will Medicare be there when you need it?

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Medicare may be in trouble. According to 2016 reports, the Medicare Trust Fund will run out of funds by 2028, two years earlier than projections made in 2015. Will this leave Americans without health care as they age?

How the Medicare Trust Fund Works

The Medicare Hospital Insurance Trust Fund supports Medicare Part A. This part of Medicare pays for inpatient hospital care as well as hospice. For people who are discharged from the hospital, it also covers short-term stays in skilled nursing facilities or, as an alternative for people who choose not to go to a facility, home health care services.

The majority of Americans do not pay a monthly premium for Part A, though they will pay deductibles, coinsurance, and copayments for services rendered. Premiums are free for people who have contributed 40 quarters (10 years) or more in Medicare payroll taxes over their lifetime. They have already paid their fair share into the system, and their hard work even earns premium-free coverage for their spouse.

People who have worked less that 40 quarters, on the other hand, will be charged a monthly premium and those dollars add up quickly. The Part A premium for people who worked between 30 and 39 quarters is $226 per month ($3,192 per year) in 2016. For those working less than 30 quarters, the cost increases to $411 per month ($4,932 per year).

The money collected in taxes and in premiums make up the Medicare Trust Fund. These dollars may not be adequate to meet the demands of the growing Medicare population by 2029.

The Impact of Aging Baby Boomers

The United States Census Bureau reported 72.5 million births between 1946 and 1964, the so-called baby boom. Of course, the number of baby boomers will always be in evolution. Consider the fact that not all baby boomers will live to 65 years old and that "new" boomers in this age group will enter the country by way of immigration.

With all factors considered, it is estimated that 8,000 to 10,000 Americans turn 65 years old every day and will do so through 2029. In 2029, it is expected that 20 percent of the U.S. population will be eligible for Medicare.

Not only are thousands of people reaching Medicare age every day but life expectancy is also on the rise. The Social Security Administration notes a life expectancy of 84.3 and 86.6 years for men and women, respectively. As people live longer, they are more likely to develop medical problems. More than a third of people between 65 and 84 years of age have at least two to three chronic medical conditions. More than a quarter of them will have four to five.

More people living longer means more medical problems and higher costs. Will the Medicare Trust Fund be able to keep up?

The Cost of Chronic Medical Conditions

As the number of chronic medical conditions goes up, the Centers for Medicare and Medicaid Services (CMS) reports higher utilization of medical resources, including emergency room visits, doctor's office visits, home health visits, inpatient hospitalizations, hospital readmissions, and post-acute care services like rehabilitation and physical therapy.

On average, Medicare Part A spends approximately $13,000 per person but the costs could be even greater for beneficiaries. Medicare beneficiaries may pay as much as $5,700 out-of-pocket each year if they have two to three conditions. That number more than doubles to $12,000 for four to five conditions and rises to $32,000 for six or more conditions.

Taken together, these factors will deplete the Medicare Trust Fund at a rate not matching the dollars coming in. If Medicare runs out of money, how will senior citizens be able to afford health care when they are already footing a hefty bill?

Proposals to Save Medicare

If Medicare is going to care for American seniors in the long run, something is going to have to change. Ideas on how to accomplish this have been controversial and have included the following:

  • Decrease how much Medicare pays doctors and hospitals. Health care access is the biggest concern with this proposal. Would fewer doctors accept Medicare for payment if they thought they would not be fairly compensated? As it stands, there is already an impending doctor shortage because of limited Medicare funding to support physician training.
  • Decrease Medicare benefits. No one wants to pay the same amount for less. As it stands, many people argue that Medicare does not cover enough. For example, Medicare does not cover the cost of ​corrective lenses, dentures, or hearing aids even though the most common things that happen as we age are changes in vision, dental health, and hearing. This leaves many Americans without the basic health services they need.
  • Increase the age for Medicare eligibility. Republicans like Senator Paul Ryan have proposed increasing the Medicare age to 67 years. While this would decrease the number of people that become eligible for Medicare in any given year, this would put a burden on seniors to pay for more expensive private insurance plans in the meantime. This could affect not only personal savings but when seniors would be able to afford retirement. 
  • Increase out-of-pocket expenses for beneficiaries. Increases in Medicare premiums, deductibles, coinsurance, or copayments could help bolster the Medicare Trust Fund dollar-wise but can seniors afford it? The majority of seniors are on a fixed income as it is and health care costs are disproportionately rising.
  • Increase Medicare payroll taxes. More taxes? This is what President Ronald Reagan did with the Medicare Catastrophic Coverage Act of 1988. The law aimed to add a prescription drug benefit and to prevent seniors from catastrophic health costs after hospitalizations, but the law was repealed within a year due to a lack of public support and an uproar regarding associated tax hikes. Are Americans going to feel differently about tax increases today?

The problem with many of these proposals is that they shift more and more of the costs onto seniors who are already living on a fixed income. As it stands, Social Security benefits have been flat. Without an increase in the Cost of Living Allowance (COLA) the past several years, seniors are already forced to stretch their dollars.

The announcement by CMS that the Medicare Trust Fund may be insolvent within decades is a clear warning sign. Elderly Americans are at highest risk for losing access to health care when they are fragile and need it most. Now that we see the problem fast approaching, how should we approach it? Better yet, how can we solve it? The answers to are up for debate but one thing is clear: Health care reform needs to become a national priority and now.

Sources:

Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 2016 Annual Report. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2016.pdf. Published June 22, 2016.

Calculators: Life Expectancy. Social Security Administration website. https://www.ssa.gov/planners/lifeexpectancy.html.

Chronic Conditions Among Medicare Beneficiaries, Chartbook: 2012 Edition. Centers for Medicare and Medicaid Services website. https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/chronic-conditions/downloads/2012chartbook.pdf.

Colby SL, Ortman JM. The Baby Boom Cohort in the United States: 2012 to 2060. May 2014; P25-1141. https://www.census.gov/prod/2014pubs/p25-1141.pdf.

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