Medicare at Risk: Visualizing the Need for Reform

Medicare at Risk

March 2013Alyene Senger

John W. Fleming

VISUALIZING THE NEED FOR REFORM

Chart 2 • Medicare at Risk heritage.org

0%

1%

2%

3%

4%

5%

6%

7%

%

%

%

%

%

Sources: Medicare Trustees 2012 report, Congressional Budget O�ce, extended baseline.

Medicare shortfall is driving federal deficit spendingThe Medicare shortfall is the difference between the money the program brings in and the money it spends on health care benefits. Even assuming that unrealistic cost-containment policies in current law are sustained, by 2040, Medicare’s shortfall will account for 81 percent of the federal deficit. Addressing runaway federal deficits requires targeting Medicare.

PERCENTAGE OF GDP

2012 2015 2020 2025 2030 2035 2040

(81% of total federal deficit)

3.3%

4.1%

Total Projected Federal Deficit

Medicare Shortfall


$0

$2,000

$4,000

$6000

$8000

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

The burden of Medicare spending on American households is risingMedicare is consuming more of household income than ever before, a trend that will continue. Absent reform, the situation will soon require either economy-crushing new taxes or painful benefit cuts in the program.

Sources: Medicare Trustees 2012 report, U.S. Census Bureau.

MEDICARE SPENDING PER AMERICAN HOUSEHOLD

$8,000

$6,000

care is consuming more of household income than efore, a trend that will continue. Absent reform, the ion will soon require either economy-crushing new or painful benefit cuts in the program.

ARE SPENDING PER AMERICAN HOUSEHOLD

$8,000

$6,000

1970: $129

2010: $4,136

2021: $7,989


Seniors receive more in Medicare benefits than they pay inMany believe that seniors pay for their own Medicare benefits, but in fact, current workers finance current enrollee benefits. In addition, most Medicare beneficiaries end up receiving more than what they paid in to the system.

Source: C. Eugene Steuerle and Richard B. Fisher, “How Lifetime Benefits and Contributions Point the Way Toward Reforming Our Senior Entitlement Programs,” NIHCM Foundation, August 2011.

FIGURES ARE FOR BENEFICIARIES WHO RETIRE AT 65 IN 2011 AND EARNED THE AVERAGE WAGE

Paid by Beneficiary

DIFFERENCE

Total Benefits Received

One-Earner Couple

Two-Earner Couple

Single FemaleSingle Male$0

$100,000

$200,000

$300,000

$400,000$357,000 $357,000

$188,000$170,000

$60,000$119,000

$60,000$60,000

$297,000 $238,000

$128,000$110,000


The number of workers per Medicare beneficiary is fallingWorkers’ contributions to Medicare aren’t set aside for their own retirement— they pay for current beneficiaries. A main cause of Medicare’s growing insolvency is that the ratio of workers to beneficiaries is falling.

Source: Medicare Trustees 2012 report.

WORKERS PER MEDICARE BENEFICIARY

19651965 20012001

4.64.0

20112011

3.3

20202020

2.8

20302030

2.3


Source: Congressional Budget O�ce (Alternative Fiscal Scenario).

PERCENTAGE OF GDP

0%

2%

4%

6%

8%

10%

12%

14%

%

2011 2015 2020 2030 20402025 2035 2045 2050

Medicare

All Other Non-Interest Spending

Social Security

Medicaid, Obamacare Subsidies

Medicare spending is growing faster than the rest of the federal budgetEntitlement spending is the main cause of long-term runaway federal deficits. Medicare is the fastest- growing program due to retiring baby boomers and rising health care costs.


0%

1%

2%

3%

4%

5%

6%

7%

%

%

%

%

%

Sources: Medicare Trustees 2012 report, Congressional Budget O�ce, extended baseline.

Medicare shortfall is driving federal deficit spendingThe Medicare shortfall is the difference between the money the program brings in and the money it spends on health care benefits. Even assuming that unrealistic cost-containment policies in current law are sustained, by 2040, Medicare’s shortfall will account for 81 percent of the federal deficit. Addressing runaway federal deficits requires targeting Medicare.

PERCENTAGE OF GDP

2012 2015 2020 2025 2030 2035 2040

(81% of total federal deficit)

3.3%

4.1%

Total Projected Federal Deficit

Medicare Shortfall


The number of workers per Medicare beneficiary is fallingWorkers’ contributions to Medicare aren’t set aside for their own retirement— they pay for current beneficiaries. A main cause of Medicare’s growing insolvency is that the ratio of workers to beneficiaries is falling.


WORKERS PER MEDICARE BENEFICIARY

19651965 20012001

4.54.0

20112011

3.3

20202020

2.8

20302030

2.3


60

65

70

75

80

0

5

079.5

70.2

Years Enrolled in Medicare

5 years

YEARS OF AGE

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Longer life expectancy means longer enrollment in MedicareThe average life expectancy in the United States has increased since Medicare was created, but the program’s eligibility age has remained constant at age 65. As a result, seniors collect benefits for almost three times as long compared to when the program started.

SSourrcee: UU.SS. CCeCCensuus Burreaauu.

Note: Some figures from 2009 through 2020 have been extrapolated.

Age of Medicare Eligibility (unchanged at 65)

Average Life Expectancy

15 years


In projecting Medicare’s cost, more realistic assumptions show an even worse outlookThe Medicare trustees are required to base their projections on current law as it is written. These projections rely on unrealistic assumptions, such as Congress allowing staggering provider payment cuts that will harm seniors’ access to care. The alternative scenario paints a more likely picture of the program’s cost. Either way, the future is bleak.

Sources: Medicare Trustees 2012 report, CMS Oce of the Actuary.

$0

$5

$10

$15

$20

$25

$30

$35

Current Law Alternative Scenario

Total: $26.9 trillion

Total: $36.9 trillionMEDICARE’S TOTAL 75-YEAR UNFUNDED OBLIGATIONS

TRILLION

Prescription Drugs

Outpatient and Physician

Services

Hospital Insurance

$6.8 trillion $6.8 trillion

$5.3 trillion$9.7 trillion

$14.7 trillion

$20.5 trillion


$0

$2,000

$4,000

$6000

$8000

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

The burden of Medicare spending on American households is risingMedicare is consuming more of household income than ever before, a trend that will continue. Absent reform, the situation will soon require either economy-crushing new taxes or painful benefit cuts in the program.

Sources: Medicare Trustees 2012 report, U.S. Census Bureau.

MEDICARE SPENDING PER AMERICAN HOUSEHOLD

$8,000

$6,000

care is consuming more of household income than efore, a trend that will continue. Absent reform, the ion will soon require either economy-crushing new or painful benefit cuts in the program.

ARE SPENDING PER AMERICAN HOUSEHOLD

$8,000

$6,000

1970: $129

2010: $4,136

2021: $7,989


0%

10%

20%

30%

40%

Medicare benefits are paid for by working AmericansApproximately 88 percent of seniors’ Medicare benefits are funded by taxpayers. Medicare Part A is mandatory coverage funded by the payroll tax. But Medicare Parts B and D, which cover outpatient services and prescription drugs, respectively, are voluntary and funded primarily by general revenue.


General Revenues

Current Workers’

Payroll Tax Contributions

All Other Drawing Down Medicare HI Trust Fund

Medicare Beneficiary Premiums

8%3%$42.5 billion

$19.2 billion

FUNDING SOURCES OF $549.1 BILLION SPENT ON MEDICARE IN 2011

41%36%

12%

$223.3 billion

$195.6 billion

$68.5 billion


Seniors receive more in Medicare benefits than they pay inMany believe that seniors pay for their own Medicare benefits, but in fact, current workers finance current enrollee benefits. In addition, most Medicare beneficiaries end up receiving more than what they paid in to the system.

Source: C. Eugene Steuerle and Richard B. Fisher, “How Lifetime Benefits and Contributions Point the Way Toward Reforming Our Senior Entitlement Programs,” NIHCM Foundation, August 2011.

FIGURES ARE FOR BENEFICIARIES WHO RETIRE AT 65 IN 2011 AND EARNED THE AVERAGE WAGE

Paid by Beneficiary

DIFFERENCE

Total Benefits Received

One-Earner Couple

Two-Earner Couple

Single FemaleSingle Male$0

$100,000

$200,000

$300,000

$400,000$357,000 $357,000

$188,000$170,000

$60,000$119,000

$60,000$60,000

$297,000 $238,000

$128,000$110,000


Projected Medicare savings from Obamacare don’t improve the program. Instead, they pay for other new programs created under the law that aren‘t even for seniors. By slashing reimbursement rates instead of introducing real reform, the health law jeopardizes seniors’ access to providers.

Obamacare raids Medicare to pay for other new programs

CUTS IN MEDICARE DUE TO OBAMACARE, 2013–2022

Source: Congressional Budget O�ce report.

* Disproportionate Share Hospital, meaning payments that go to hospitals that serve a large number of low-income patients.

$0 $50 $100 $150 $200 $250

Hospital services

Payment rates in Medicare Advantage

DSH* payments and other Medicare

provisions

Home health services

Skilled nursing services

All other services

Hospice services

billion

Obamacare cuts$716 billion

from Medicare

$260 billion

$156 billion

$145 billion

$66 billion

$39 billion

$33 billion

$17 billion


Cutting provider payments to lower Medicare costs will hurt accessRatcheting down Medicare payments to contain the program’s cost growth will limit seniors’ access to care. Medicaid, the government health program for the poor, already sets provider payment rates far below private insurance, creating similar barriers to care for enrollees.

Sources: CMS Actuary’s 2012 Illustrative Alternative Scenario. * Average of all states.

PHYSICIANPAYMENT RATES

100%of Private Insurance Payment Rates

0%

25%

50%

75%

2012 2086

MedicareMedicaid*

80%

58%

26%

58%


Seniors face severe access problems because of Obamacare cutsObamacare makes deep cuts to provider payments to offset the cost of new programs that aren’t for seniors. If these deep cuts go into effect, many providers will operate in the red, making it very difficult for seniors to access their services.

PERCENTAGE OF HOSPITALS, SKILLED NURSING FACILITIES, AND HOME HEALTH AGENCIES THAT WOULD OPERATE AT A LOSS


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2019 2030 2050

15%

25%

40%


2014 2015 2020 2025 2030 2035 2037

Small Medicare reforms can make a big di erenceKeeping Medicare “as we know it” is unsustainable. A simple reform such as raising upper-income beneficiaries’ premiums and gradually phasing out taxpayer subsidies for the wealthiest retirees (about 3 percent) would save hundreds of billions of dollars.

PROJECTED MEDICARE SAVINGS DUE TO HERITAGE’S MEANS TESTING

Source: Calculations by the Heritage Foundation’s Center for Data Analysis based on baseline data in the current projections and data provided by the Peter G. Peterson Foundation.

$0

$50

$100

$150

$2002037: $179 BILLION

2014:$39 BILLION


6%

4.5%

Heritage plan would rein in excessive Medicare spendingHeritage’s comprehensive Medicare reform would financially preserve Medicare for future generations while also improving it as an insurance program for America’s seniors.

MEDICARE SPENDING AS PERCENTAGE OF GDP

Source: Calculations by the Heritage Foundation’s Center for Data Analysis using data from the Congressional Budget O�ce’s 2012 Long-Term Budget Outlook.

3%

4%

5%

6%

5%

6%

2013 2015 2020 2025 2030 2035 2037

Current Law

Heritage Plan

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Medicare at Risk: Visualizing the Need for Reform