Brookings Institution Forum

Medicare at 50 Faces Its Own Health Concerns

June 12, 2015 10:55 am Michael Laff Washington, D.C. –

As Medicare approaches its 50th birthday on July 30, health policy analysts have been giving the program a detailed exam, concluding that although Medicare remains widely popular, it has some long-term health concerns.

Gregory Daniel, Ph.D., M.P.H., second from right, a research fellow at the Brookings Institution, discusses the options for reducing Medicare costs during a recent Brookings forum in Washington, D.C. He was joined on the panel by, from left, Paul Van de Water, Ph.D.; Julian Harris, M.D., M.B.A.; and Dana Goldman, Ph.D.

Looking into the near future, 2030 will be a watershed year as the youngest of the baby boom generation becomes eligible to receive Medicare. It is also projected to be the year when the trust fund supporting the federal program will become insolvent. With that milestone in mind, the Brookings Institution recently hosted a forum(www.brookings.edu) to address how demographic and policy changes will shape the next generation of Medicare beneficiaries.

Panelists praised Medicare for improving the health of a vulnerable population that needs greater medical attention.

"It changed the experience of being old for Americans and reduced the anxiety about medical expenses," said Alice Rivlin, Ph.D., director of the Brookings Center for Health Policy. "It has allowed seniors to live longer, less painful, more productive lives."

Medicare spending, which accounted for 3 percent of gross domestic product (GDP) in 2014, is expected to continue rising, although not at an accelerated rate. A 2007 projection expected Medicare spending in 2030 to account for 6.5 percent of GDP. In 2014, this percentage was revised downward to 3.8 percent.(kff.org)

Story highlights
  • Medicare is a popular program, but it has long-term challenges that need to be addressed as it approaches its 50th anniversary this summer, said panelists at a recent Brookings Institution event.
  • A major demographic shift involving Medicare beneficiaries' ethnicities, education levels and health profiles will occur in the next 15 years.
  • Several panelists said maintaining Medicare's quality will require more funding, which cannot be achieved in a budget-neutral fashion.

Also in the next 15 years, Medicare will undergo a major demographic shift involving beneficiaries' ethnicities, education levels and health profiles. The percentage of Hispanics who are receiving Medicare is expected to rise significantly, from 6 percent in 2010 to 10 percent in 2030.

Among the current population of recipients, 21 percent have less than a high-school education. By 2030, that percentage is expected to shrink, and it is anticipated that 62 percent will have some college education, said Dana Goldman, Ph.D., director of the University of Southern California Leonard D. Schaeffer Center for Health Policy and Economics. Smoking levels among beneficiaries will be lower by 2030, but the rate of obesity will be much higher, he said.

The total value of Medicare benefits for an individual's lifetime was $131,000 in 2010. By 2030, that figure will rise to $223,000, Goldman said. Unless significant reforms are made, most of the additional benefits are expected go to individuals in the top quartile income bracket.

Potentially raising the eligibility age for Medicare recipients has been a sensitive policy topic that could come up again if certain medical innovations are introduced. For example, Larry Page, one of the founders of Google, started a biotechnology company, Calico, that is exploring therapies that could delay aging.(business.time.com) The results of such work, should it come to fruition, would not be priced cheaply and could necessitate spending cuts if Medicare were to pursue such an option. Currently, the program does not cover supplements that are designed to keep people healthy.

"Larry Page is not going to give it away for free like he does with search engines," said Goldman.

Overall, controlling costs will require some sacrifices in coverage that beneficiaries are often not willing to accept. Medicare beneficiaries now spend 15 percent of their income on out-of-pocket expenses. Goldman said one potential option would be to reduce the nearly unlimited coverage and give beneficiaries $75,000 in a lump sum.

When individuals purchase car insurance, they are often willing to forgo some damage protection to save on premiums. However, their expectations are much different when buying health insurance, according to Gregory Daniel, Ph.D., M.P.H., a research fellow at Brookings.

"The majority of our society in terms of health insurance desires that (insurance) cover everything, although they are not happy with the premium," he said.

Medicare's limited cost-sharing is leading to less control over costs and few coverage limits. James Capretta, M.A., a fellow at the Ethics and Public Policy Center, said given the risk-averse nature of the elderly population, the initial cost-sharing requirements were inadequate, so new supplemental plans such as MediGap were offered.

The percentage of Medicare beneficiaries who are exposed to some form of cost-sharing is probably less than 10 percent, Capretta said, because they have additional coverage from their employer or Medigap. The amount that is paid by Medicare patients at the point of service is very low, he noted.

"This explains Medicare fee-for-service," Capretta said. "For decades, Medicare has been a high-volume, high-intensity program. More than any other factor in United States medicine, it has contributed to fragmentation and the overbuilding of the medical delivery system. A lot of people bemoan it, but Medicare has been a big contributor to that."

Medicare Advantage was introduced as a possible solution to reduce cost by contracting with private insurers who would manage coverage, but the program has received negative reviews.

Marilyn Moon, Ph.D., a research fellow at the American Institutes for Research, said Medicare Advantage plans need greater scrutiny because they look appealing to individuals who are healthy, but carry higher copays for important services such as home care.

"Medicare is still better than many alternatives that are being offered," Moon said. "There is no sign that the private sector is ready to step in."

Over the long term, several panelists said, maintaining Medicare's quality will require more funding, which cannot be achieved in a budget-neutral fashion. Increasing catastrophic coverage by raising the cost-sharing requirement for beneficiaries is not effective, they said.

"Medicare is absorbing an enormous amount of healthy 65- and 66-year-olds, but when they are 70 to 75, their costs will go up," Moon said.

Related AAFP News Coverage
Medicare's Rising Popularity Brings Increasing Costs
Policy Experts Examine Program in Advance of 50th Anniversary

(5/26/2015)


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