Medicare Expenditure Projections

Expenditures are expected to reach more than $6 trillion by 2028.

Quoting from a recent press release, I noted that the Centers for Medicare & Medicaid Services (CMS) said, reflected by the below bullet points, that:

Major Findings for National Health Expenditure Projection: 2019-2028:

• National health spending is projected to grow at an average annual rate of 5.4 percent for 2019-28, and to reach $6.2 trillion by 2028.
• Because national health expenditures are projected to grow 1.1 percentage points faster than gross domestic product per year, on average, over 2019–28, the health share of the economy is projected to rise from 17.7 percent in 2018 to 19.7 percent in 2028.
• Price growth for medical goods and services (as measured by the personal health care deflator) is projected to accelerate, averaging 2.4 percent per year for 2019–28, partly reflecting faster-than-expected growth in health sector wages.
• Among major payors, Medicare is expected to experience the fastest spending growth (7.6 percent per year over 2019-28), largely as a result of having the highest projected enrollment growth.

“Cost shifting” was a term heavily used in the 1980s. The term meant that Medicare and Medicaid did not have to pay their share of the full costs because some of that could be “shifted” to other payors, including uninsured patients. Providers that could cover fixed costs like depreciation and utilities with Medicare and Medicaid payments would continue to take Medicare and Medicaid patients, even if they did not cover the “variable costs” of things like salaries.   

Problematically, with this “cost shifting” approach, is the fact that Medicare and Medicaid now take up too much of the total patient population, and the percentage is growing, according to CMS – and there are not enough other payors to make up the slack. 

It appears that either Medicare and Medicaid will have to increase payments to match at least the cost of services, or providers will have to reduce costs to balance their books – something neither has been able to do since the start of Medicare.

Programming Note: Listen to Tim Powell every Tuesday when he anchors the Talk Ten Tuesdays News Desk at 10 a.m. Eastern.