Medicare Challenges

what's it mean for beneficiaries?

For more than 40 years, Medicare has successfully provided access to needed health care services for the elderly and many people with disabilities. It currently covers 44 million Americans. But increasing national health expenditures combined with demographic trends pose a serious challenge to the financing of Medicare in the 21st century. A recent policy brief from the Kaiser Family Foundation (www.kff.org) provides some perspective on what factors are affecting growth in Medicare spending and what it means for current and future Medicare beneficiaries.

Growth in spending

We've all heard the concerns about the number of baby boomers approaching Medicare age, and the lack of workers to support funding Medicare. Consider these numbers:

• • Since 1995, Medicare enrollment has grown by an average of 550,000 beneficiaries annually
  • When the baby boomers begin turning 65 in 2011, Medicare enrollment is expected to increase each year by 1.6 million beneficiaries
  • In 2030, Medicare enrollment is expected to reach 79 million enrollees - double the program enrollment in 2000

Ironically, the influx of baby boomers into Medicare will actually create an age mix that is younger than it is today. But when the baby boomers begin to reach age 85, the age mix is expected to grow much older and the expenditures increase substantially.

Then there is the issue of workers contributing to help cover costs. Shifting demographics with more beneficiaries retired and fewer workers contributing has an impact on Medicare financing.

• • In 2006, 3.9 workers were contributing taxes for each beneficiary
  • By 2030 there will be 2.4 workers contributing for each beneficiary
  • By 2080 there will be 2.0 workers per beneficiary
  • Medicare Part D and increased enrollment in Medicare Advantage plans will also lead to higher costs for the government program. While a Medicare Advantage plan is often less expensive for the consumer to participate in, it costs an estimated 13 percent more for Medicare than if the beneficiary were in Original Medicare.

Physician payments are another source of increased costs in the future. Only administrative costs are not a contributing factor to Medicare's expenditures growth, according to the paper.

Impact on beneficiaries

The bottom line? Expect more money out of your own pocket for health care in the future. Here's what the Kaiser Foundation paper predicts:

• • Medicare beneficiaries can expect to pay an increasing share of their income for Medicare coverage. In 2010, premiums for Part B and Part D are estimated to equal 12 percent of the average Social Security Benefit, according to the report. If you are subject to the income-related Part B premium, you might expect even more.
  • Rising premiums for Medicare supplemental coverage. Of course the impact varies with those who are healthier experiencing fewer co-payments and those with higher income able to afford to pay more for the Medicare benefits.

So what's it mean to a current or future Medicare beneficiary? Your costs for health care coverage will likely continue to increase. If you're working on your retirement plan, make sure you have factored in increases in health insurance costs.

You can find the full report at www.kff.org. Financing Medicare: An Issue Brief. Prepared by Lisa Portex, Health Policy alternatives, Inc.; Pub. #7731