A new report this week about future increases in Medicare spending set off wildly misleading headlines about the program’s future and what is might mean for efforts to expand it, as many prominent Democrats are proposing. As you wade through all this, there may be much less to the new forecast than meets the eye. Keep in mind three points:
- Medicare spending is projected to rise faster than private health insurance spending. But that mostly is because the number of people enrolled in Medicare is rising so much more rapidly.
- Medicare spending per enrollee is projected to grow at roughly the same rate as private insurance, after several years of growing more slowly. Thus, these new estimates say little about Medicare’s relative efficiency as a buyer of medical care.
- This is 10-year projection. And long-term forecasts of health expenditures are nearly always wrong.
The estimates, published in the journal Health Affairs, were produced by staffers at the Centers for Medicare and Medicaid Services (CMS). It is the latest report in an annual exercise aimed at projecting national health expenditures for the coming decade.
Overall, the CMS analysts projected that medical care will consume 19.4 percent of total US output in 2027, up from 17.9 percent in 2017. The annual rate of medical spending growth will exceed 5 percent by 2027, while other government estimates forecast the overall economy will grow by less than 2 percent.
One-fifth of GDP
Combined with costs of long-term supports and services, the US will be spending more than a fifth of its Gross Domestic Product on health and supportive services. That is noteworthy and worrisome.
While conservatives often warn about government taking over health care, that train already has left the station– at least if you are talking about who is paying. In 2018, Medicare and Medicaid alone paid for more than half of all medical care. By 2027, the two programs will pay about $2.5 trillion, or 57 percent of medical spending. And that doesn’t include other federal payers such as the military and the Veterans Administration.
Now, about Medicare: Overall, CMS estimates program spending will grow by an eye-popping 7.6 percent by 2027, far outpacing private health insurance that CMS thinks will grow by about 5.1 percent.
Aging Baby Boomers
Some spending growth will be due to higher costs for hospital care and prescription drugs. But private insurance also will be paying more for those service and products. Thus, per enrollee spending growth will be only slightly higher for Medicare than for private insurance. And other evidence suggests that Medicare spending growth for some common conditions, such as heart disease, may be slowing.
The main reason Medicare spending is projected to rise so much faster than private insurance is the huge gap in expected enrollment.
CMS figures that private health insurance will cover fewer people this year than last, largely because of efforts by the Trump Administration to discourage enrollment in the Affordable Care Act health exchanges. Enrollment will be growing again by 2027, but slowly.
By contrast, the aging Baby Boomers will drive significant growth in Medicare enrollment from about 59 million last year to more than 73 million in a decade.
To its credit, CMS looks back at the accuracy of its prior estimates. Not surprisingly, its spending projections have been fairly close to the mark for three years out. But after that, not so much. Enrollment in Medicare, driven largely by demographics, is easy to project. But a forecast also requires making assumptions about unknowable changes in technology, competition, and the law. For example, will the government lower the costs of prescription drugs? Will the US have Medicare for all? And what does that even mean?
The CMS forecast of future health spending is a valuable tool. It tells us that medical treatment will continue to absorb a growing share of our economy, which leaves fewer resources for other endeavors. And it tells us that aging Baby Boomers will drive a big increase in Medicare spending, though we knew that.
But it tells us very little about whether Medicare is a more or less efficient payer of health care than private insurance. Keep that in mind when politicians try to use it as evidence for their views on the future of the program.