There has been a lot of conversation about Medicare’s financial outlook and whether it can withstand the influx of beneficiaries now and in the future. Naturally, there are a lot of myths about Medicare. As a large part of the country’s federal budget, Medicare spending continues to rise. However, it is a critical part of the country’s infrastructure — funding one-fifth of all health spending in the U.S.
Here are the top four myths about Medicare’s financial future.
1. Medicare is going broke
No, Medicare is not going broke. News headlines that claim “Medicare is bankrupt” often discuss rising average spending per beneficiary. Monetary deductions made throughout one’s working career are stored in a trust fund to cover Medicare Part A. If the beneficiary exceeds that amount and Medicare has to pay the amount it is exceeded by, Medicare’s spending increases. As a whole, if Medicare is overspending too much, it won’t have enough funds to pay for its beneficiaries.
At the current rate, Medicare will be able to pay for hospital insurance (Part A) for beneficiaries in full until 2026. Even after that, incoming taxes and other revenue will still be able to pay 89 percent of hospital insurance costs.
2. Rising health care costs will cap Medicare’s ability to cover beneficiaries
Yes, Medicare spending is rising as a result of increasing overall health care costs. However, Medicare’s per beneficiary spending has grown more slowly than private insurance.
Reports have warned of Medicare’s impending insolvency for over four decades. But over time, Presidents and Congresses have taken steps to keep spending and resources in balance so that the program can continue to pay benefits.
3. Medicare’s spending is increasing too rapidly
In relation to the entire federal budget, Medicare spending will increase gradually over the next ten years. In 2020, Medicare’s spending as a part of the entire federal budget was about 12%. This is actually lower than it was in 2018! Under the current law structure, this number will rise to 20% in 2051.
“That increase in spending is largely due to the retirement of the baby boomers (those born between 1944 and 1964), longer life expectancies, and healthcare costs that are growing faster than the economy.” – Peter G. Peterson Foundation
4. Part D coverage won’t exist in the future
Although drug coverage funding is one of the largest challenges for Medicare, it is not projected to go away in the foreseeable future. One reason for rapid growth in Part D spending is the rising cost of specialty drugs.
Currently, Medicare overpays pharmaceutical companies for things such as drugs prescribed to low-income beneficiaries. Just as with Medicare Part B, premiums for Part D are adjusted each year to help share the costs of prescription plans.
While it is not wise to guess what will happen to Medicare in the future, we know it is not going away any time soon. There are still many steps that can be taken to create more savings for the Medicare program. Plus, future governments can continue to solve for budget shortages to ensure that the American people have the health coverage they need.
