Is Medicare Going Broke? 3 Trends to Watch

December 29, 2015 by Antonio Arias, MBA, CHBME

Topics: Medical Billing, Revenue Cycle Management, Practice Management

When President Johnson signed Medicare into law on June 30, 1965, he said: "If it has a few defects, I am confident those can be quickly remedied." Quickly is a relative term… but more than fifty years later, more than a few defects remain.

The death knell and possibility for Medicare going broke and its sister program, Medicaid, has been sounded regularly for decades by politicians, government entities, and special interest groups alike. Their claims that Medicare is headed for bankruptcy are largely overblown, but they’re not entirely without merit: Healthcare spending overall has decreased in recent years, but in 2014 Medicare spent over $613 billion to cover care for 54 million beneficiaries. Projections of Medicare costs are highly uncertain, especially when looking out more than several decades, so it’s likely that the program will continue to eat up an ever greater portion of the federal budget and the economy.

Even more concerning may be the structural flaws leading the program to misallocate and misuse funds. A recent Government Accountability Office report found that $60 billion (10 percent of Medicare's budget) was lost to waste, fraud, abuse or improper payments in 2014.

Beyond that misspent 10 percent, however, what’s plaguing the Medicare program moving forward? What forces will have the greatest impact on Medicare’s solvency in 2016 and beyond? For any healthcare group, revenue cycle management entity, medical billing company, or Medicare-covered patient interested in the future of the program, these are the top issues to keep an eye on.

The ACA & its Ongoing Impact

According to a report from the Center on Budget and Policy Priorities (CBBP), healthcare reform via the Affordable Care Act (ACA) has “significantly improved Medicare’s financial outlook, boosting revenues and making the program more efficient.” For example, Medicare’s Hospital Insurance trust fund is now projected to remain solvent 13 years longer than before the Affordable Care Act was enacted. Will the ACA’s positive effects continue? Or will changing patient behavior in the new ACA-powered healthcare landscape lead to greater Medicare spending in the years to come? Only time will tell.

U.S. Population Changes

Seniors today can expect to live 17 to 20 years (and counting) after reaching Medicare eligibility, and that has an undoubted impact on Medicare moving forward: Despite the improvements resulting from the passage and implementation of the ACA, the CBBP acknowledges that Medicare “continues to pose long-term budgetary challenges, stemming from the aging of the population and the continued rise in costs throughout the U.S. healthcare system.” Total Medicare spending is projected to grow from 3.5 percent of gross domestic product (GDP) in 2014 to 5.4 percent in 2035; and if the number grows beyond that, it could become unsustainable.

Rising Pharmaceutical Costs

Medicare spending on drugs was 0.48 percent of GDP in 2014, and the proportion will only grow as specialty drugs rise to oust more of their cheaper generic counterparts: Specialty drug spending accounted for one-third of all pharmaceutical spending by Medicare in 2014 despite comprising only 1 percent of drugs prescribed.

Are Medicare issues creating problems for your practice management? Partner with a trusted medical billing service to mitigate Medicare’s impact on your income.

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