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Financial Health and Future Sustainability of Medicare, Term Paper Example

Pages: 1

Words: 1036

Term Paper

Medicare is a national insurance program which provides access to healthcare for Americans who are over the age of 65, disabled, or have conditions like end stage renal failure or Lou Gehrig’s disease; it currently has approximately 48 millions enrollees and this number is expected to increase to approximately 80 million by the year 2030 (Wikipedia, 2013, p. 1). These numbers alone make Medicare an important issue, not only to the Medicare beneficiaries but to Americans as a whole.  This paper deals with the current financial health of the Medicare Program as well as what is projected for Medicare sustainability in the future.

Current Medicare Funding

As the system stands now, Medicare has several sources of funding.  Medicare Part A is funded by revenue from a 2.9% payroll tax established by the Federal Insurance Contributions Act (FICA).  As of 2013, a 2.9% hospital tax will also help fund this Part A; this tax is for families whose household income under $200,000 annually; if the income exceeds this, the tax rises to 3.8%.  (Wikipedia, 2013, p. 4).  Currently, most users of Medicare Part A get this premium-free, but if it is purchased, the premium can be up to $441 per month as of 2013 (Medicare. Gov, 2013, p. 6). Medicare Parts B and D are funded by premiums paid by Medicare beneficiaries and also from general fund revenue. (Wikipedia, 2013, p. 5): it currently stands at a ration of approximately ¾ of its revenue from the general fund and another ¼ from the premiums paid out by Medicare beneficiaries. It also receives some funding from the states and from revenues from pharmaceutical companies who manufacture brand-name drugs (Social Security and Medicare Board of Trustees, 2012, p. 2).   For Medicare Part B, most people pay the standard premium of $104.90 per month, although this premium rises with income level (Medicare. Gov, 2013, p. 6).

Medicare Funding for the Future

In 2011, Medicare spending accounted for 15% of the federal budget, and this number is projected to rise to 17% of the budget by 2020, in part due to the large number of “baby boomers” who are reaching eligibility age.  (Wikipedia, 2013, p. 3).   This means that a larger and larger number of Americans will be using Medicare as their primary insurance, but there is already great doubt as to the future solvency of Medicare Hospital Insurance (HI) Fund which currently helps finance  Medicare Part A.  The fund will be considered insolvent when “available revenue plus any existing balances will not cover 100% of the projected costs” (Center for Medicare and Medicaid Services, 2011, p. 212 ), and according to the 2011 report from the Medicare Trust trustees, the HI Fund will become insolvent in 2024, thirteen years from now  (Center for Medicare and Medicaid Services, 2011, p. 212).  In a recent paper summarizing the Annual Reports for 2012, the Board of Trustees for Social Security and Medicare also predicts that the HI Fund will be insolvent by 2024, when the income for the fund will be less than the benefits that it is paying out (Social Security and Medicare Board of Trustees, 2012, p. 1).

However, the Board of Trustees does not predict this same problem for Medicare Part B and Part D and maintain that they  will remain solvent, since “current law automatically provides financing each year for next year’s expected costs” (Social Security and Medicare Board of Trustees, 2012, p. 2).  And there are many who believe that claims of insolvency are misleading and that though there will be challenges to face in the future, that the future of Medicare is not as bleak as has been stated.  Many experts think that recent healthcare reform like the Affordable Care Act have improved the outlook for Medicare’s future and that the predicted shortfall in the HI Fund can be closed through some combination of revenue additions and changes to help manage healthcare costs (Van de Water, 2012, p. 1).

The importance of acting to help avoid some sort of financial crisis in Medicare cannot be overstated.  The Congressional Budget Office has written “future growth in spending per beneficiary for Medicare and Medicaid – the federal government’s major healthcare programs – will be the most important determinant of long-term trends in federal spending.  Changing these programs in ways that reduce the growth of costs – which will be difficult, in part because of the complexity of health policy choices – is ultimately the nation’s central long-term challenge in setting fiscal policy” (Congressional Budget Office, 2008, p. 162).

Conclusion

The Social Security and Medicare Board of Trustees, in their report, concludes by recommending that “lawmakers should address the financial challenges facing Medicare as soon as possible” so that it will “leave more options and more time available to phase in changes” (Social Security and Medicare Board of Trustees, 2012, p. 5).  This seems a reasonable course: clearly, the funding for Medicare as it stands now is not sustainable (at least not for Medicare Part A), but at the same time a growing percentage of the population is dependent on Medicare for health insurance, and this number is only going to grow in future years.  Whatever changes are made to help increase the sustainability of Medicare should be done before the situation becomes a crisis so that change or reform would be gradual, and would also take into account the importance that Medicare has for the elderly, the disabled, and those will diseases like end stage renal failure or Lou Gehrig’s disease, who are all very vulnerable members of  our population and who often would not be eligible for private, affordable health insurance.  The problem is not simple, and it is unlikely that the solution to the problem will be simple, either.

Works Cited

Center for Medicare and Medicaid Services. (2011).  Trustees Report.  Retrieved from: www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf

Congressional Budget Office.  (2008).  The Long-term Budget Outlook and Options for Slowing          the Grown of Healthcare Costs. Retrieved from: www.cbo.gov/publications/41709

Medicare. Gov.  (2013).  “Your Medicare Costs”. Retrieved from: www. Medicare.gov  

Social Security and Medicare Board of Trustees.  (2012).  A Summary of the 2012 Annual Reports. Retrieved from: www.ssa.gov/oact/trusm 

Van de Water, Paul. (2012).  Medicare is not Bankrupt.  Center for Budget Policies and Priorities. Retrieved from: www.cbpp.org/cms/?fa=viewbid=3532

Wikipedia Online Encyclopedia.  (2013). “Medicare”. Retrieved from: http://en.wikipedia.org/wiki/Medicare_(United_States)

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