HEALTHCARE COST

What Is Driving Our Healthcare Costs Up

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What Is Driving Our Healthcare Costs Up

What is driving our healthcare costs up?

Concerns about Medicare spending are front and center in discussions of how to rein in our federal budget deficit. That concern is understandable given Medicare's share of the federal budget—at 12 percent and growing. At the same time, Medicare's trustees predict that Medicare's Part A trust fund, which pays primarily for hospital care, will become insolvent—with revenues insufficient to pay full benefit—by 2024 (Jemal, 1993).

Whether from a fiscal or a solvency perspective, then, these projections raise real challenges for sustaining the Medicare program. Today 48.5 million people rely on Medicare to make quality health care affordable. In 2035, when Medicare has absorbed the baby boom generation, beneficiaries of the program will number 85.3 million (Jemal, 1993).

Serious proposals to address these challenges can only be based on a clear understanding of the underlying facts about what is driving Medicare's cost growth. The two most salient facts are these:

The payment changes in the Affordable Care Act enacted last year actually do “bend the cost curve” by bringing the projected growth in Medicare spending per beneficiary well below projected per capita growth in health care spending overall.

Medicare spending is not just about costs per beneficiary but also about the number of beneficiaries—and this year is when the baby boom generation begins to turn age 65 and becomes eligible for Medicare, adding a million and a half more beneficiaries to Medicare's rolls every year.

This means the Medicare program will be doing its part to become more effective and efficient in “per capita” spending, controlling the cost of health care while improving the quality of care, but more revenues will be needed to support the growing numbers of older Americans who are aging into the Medicare program (Jemal, 1993).

At the same time this slowdown occurs, however, the number of enrollees in Medicare begins to rise. The first of the baby boomers become eligible for Medicare in 2011. In contrast to enrollment growth from 2001-2010 (average annual growth in beneficiaries was 1.9 percent or half a million to a million more people each year), enrollment from 2011-2020 is projected to grow by an average of 3 percent per year, or a million and a half more people each year.

What does this mean for overall spending growth? For the first time in Medicare's history, growth ...