Medicare is one of the most important issues facing senior citizens, both present and future. Not only is Medicare spending growing rapidly, but the revenue coming into the program also isn't expected to be enough to keep Medicare solvent for too much longer. Here are the statistics about the state of Medicare, its projected future, and what can be done to fix the problem.
Medicare is a big part of our national expenditures
Just to give you an idea of just how big Medicare is, consider these statistics about the program's size and just how reliant America's senior citizens are on the program.
- There are about 55.2 million Medicare enrollees as of 2015 -- that's around 16% of the U.S population.
- In a recent year (2013), Medicare represented 20% of all national health expenditures.
- Medicare benefits are approximately $605.9 billion in 2015.
- The average Medicare household spends $4,722 out-of-pocket on healthcare costs per year. This is in addition to the benefits mentioned above.
- Many seniors are highly reliant on Medicare. Half of Medicare beneficiaries have household incomes of less than $24,150.
And the spending will keep growing
As big as Medicare is now, the scariest thing is what's expected to happen in the future. Just to name a few of the latest projections:
- 19.1 million people will enroll in Medicare over the next 11 years as baby boomers retire.
- The senior citizen population is growing at seven times the rate of the rest of the adult population.
- A total of 92.8 million Medicare enrollees are expected by 2050.
- Between the 10-year period from 2014 to 2024, Medicare spending is projected to grow at a 7.2% annual rate (4.1% on a per-capita basis).
- The Medicare trustees' report projects that Medicare spending as a percentage of GDP will gradually rise from 3.5% in 2014 to 6% in 2089.
Medicare is heading toward insolvency
Medicare is funded by a combination of general revenues (41%), payroll taxes (38%), and collected premiums (13%), plus a few smaller sources. However, this takes into account all of the "parts" of Medicare. Part A, which is the hospital insurance, is funded almost entirely by the payroll tax and the additional Medicare tax on high-income earners. And, the tax revenue isn't likely to be enough to keep Medicare solvent for much longer. Consider the following:
- According to the latest Medicare trustees' report, the Medicare trust funds will be completely depleted by 2030, at which point the only available funding will be from incoming taxes.
- Medicare is actually projected to run a slight surplus from 2015 to 2023, and then return to annual deficits after that time (There has already been a Medicare spending deficit from 2008 until last year).
- The last time the Medicare tax rate was increased was in 1985, from 1.35% to 1.45%. The wage cap was eliminated in 1994, the additional 0.9% Medicare tax on high earners was implemented in the 2013 tax year, as was the 3.8% Net Investment Income Tax on certain investment income.
Medicare is important
Lastly, people care about Medicare, and they want to see some type of solution that will keep the program going.
- According to a recent Kaiser Family Foundation survey, 77% of Americans of all ages see Medicare as "very important", including a majority of both Republicans and Democrats.
- In the same survey, 89% want to either increase Medicare funding or keep it the same.
The drive to reform Medicare is clearly there. However, the exact reform package that will eventually happen remains to be seen.
What can be done?
There are several things that can be done to keep Medicare. Obviously, we could raise Medicare taxes, and if certain politicians get their way, this could certainly happen. In addition, there are other things that could be done. Just to name a few possibilities, we could:
- Restructure benefits and cost-sharing arrangements.
- Increase Medicare premiums for higher-income individuals.
- Raise the eligibility age.
- Allow the government to negotiate drug prices (currently this isn't allowed).
What will actually be done is uncertain. But given how important Medicare is, I'm confident that something will be done.