Medicare is big. And as America gets grayer, the health insurance program for seniors and the disabled is going to get a lot bigger — and more expensive.
About 51 million Americans were covered by Medicare in 2012, at a cost of around $574 billion, or about 3.6 percent of the nation's gross domestic product. By 2023, about 70 million people will get health care paid for by Medicare, and their tab is expected to hit $1.1 trillion.
So what's behind Medicare's rising costs? There are lots of factors, but the biggies are obvious. "The growth in health spending, which affects all payers, is influenced by increasing volume and use of services, new technologies, and increasing prices," the Kaiser Family Foundation writes in a primer about Medicare's finances.
Americans have some ideas, too. But many of the cost factors that people think are the most important pale in comparison to those that actually are, finds an analysis of six different polls that was published in a recent issue of the New England Journal of Medicine.
Mismanagement and fraud top the list. Too little spending on preventive care is also in the mix.
"People are more worried about not getting care they need than overuse of care," says Robert Blendon, who co-directs the Robert Wood Johnson Foundation/Harvard School of Public Health project on understanding Americans' Health Agenda. "People don't understand the basics about why it's more expensive."
Why People Say Medicare Costs Are Rising
|1. Poor government management
|2. Fraud and abuse
|3. Excessive hospital charges
|4. Excessive drugmaker charges
|5. More people in Medicare and fewer people to pay for it
|6. Excessive doctor charges
|7. Money diverted from Medicare to other programs
|8. People not getting needed drugs and treatment
|9. People not getting enough preventive care
|10. Medicare beneficiaries living longer
|11. Malpractice lawsuits and settlements
|12. New drugs, tests and treatments for the elderly
Common misconceptions about how Medicare is financed have public policy implications. Most people think beneficiaries pay their own way or have prepaid care, for instance. And most people don't quite grasp how Medicare spending is a factor in the federal budget deficit.
The reality is that Medicare recipients pay only about one-third of the cost of the benefits they get. "We think people are thinking about Medicare like Social Security," Blendon, lead author of the analysis tells Shots. "They don't understand why it's such a drain on the federal budget."
Even if things go as the trustees of Medicare assume, the program's cost will rise to 5.8 percent of GDP in 2040 and 6.5 percent in 2087, according to a May report on the financial health of the program.
If assumptions about future cost savings, productivity gains and limits on spending don't pan out, Medicare costs would swell to 9.8 percent of GDP in 2087, the report says.
Now it's true that spending growth has slowed in recent years, helping to extend by two years the projected solvency of Medicare's fund for hospital care to 2026.
And it seems pretty likely Medicare's finances are unlikely to fulfill the rosiest scenarios, even with some tweaks made by the federal health overhaul. Doctor pay is likely to go up, for instance.
"While the substantial improvements in Medicare's financial outlook under the Affordable Care Act are welcome and encouraging, expectations must be tempered by awareness of the difficult challenges that lie ahead in improving the quality of care and making health care far more cost efficient," the Medicare actuary's office wrote in May. "The sizable differences in projected Medicare cost levels between current law and the illustrative alternative scenarios highlight the critical importance of finding ways to bring Medicare costs — and health care costs in the U.S. generally — more in line with society's ability to afford them."