The Medicare Trustees Report in Perspective

Abstract

Last week’s annual report from the Medicare Trustees reflects small but noteworthy improvements in the financial outlook of part of the program. Annual growth in Medicare spending per beneficiary slowed to less than 1 percent last year, well below the per capita growth of the economy as measured by gross domestic product (GDP) and enough to push back the projected insolvency date for the Hospital Insurance (HI) Trust Fund (Part A, which pays for inpatient care) to 2026 – two years later than last year’s report. This is good news but should be seen in context. As Figure 1 shows, annual estimates of HI solvency since 1990 have ranged from four years to 28 years, averaging 13.6 years. So this year’s projection falls just below the 24-year average. The Trustees Report includes various ways to view Medicare’s fiscal health over time. One metric is to look at long-term projections of Medicare as a share of GDP over the next 75 years. Total Medicare spending includes Supplementary Medical Insurance (SMI, or Part B, which covers physician, outpatient hospital, and some home health costs that are unrelated to a stay in a hospital) as well as prescription drug benefits (Part D). Under the Trustees’ intermediate assumptions, total Medicare expenditures will grow from 3.7 percent of GDP in 2012 to 3.9 percent of GDP in 2020 and 6.5 percent of GDP in 2087, as shown in Figure 2. In the near term – that is, from now through about 2035 – the increase is being driven largely by the increasing numbers of Medicare-eligible baby boomers, who began entering the ranks of beneficiaries in 2011.