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3 Trends Driving Medicare Towards Bankruptcy

by Fred Pennic 10/21/2015 Leave a Comment

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Medicare Bankruptcy

The 50-year old Medicare program is not aging well; and that’s not good news for seniors, according to a new report by National Center for Policy Analysis Senior Fellow Devon Herrick. When President Johnson signed the Medicare program into law on July 30, 1965, no one anticipated the program to grow at the rate it has. In 2014, the Medicare program spent over $613B to cover healthcare for 54 million beneficiaries. The law states that seniors do not qualify for Medicare until age 65, when a larger portion of the country did not live past that age. At its inception, life expectancy for men and women born in 1900 was under 50 years of age. Medicare only expected cover beneficiaries for another few years based on the lower life expectancy rates at that time. 

The report identifies three major trends driving Medicare towards bankruptcy:

1. Lengthening Life Expectancies.

Americans born in 1900 and earlier were eligible for Medicare at its inception in 1965, but life expectancy for men and women born in 1900 was under 50 years of age. Today, seniors can expect to live another 17 to 20 years after reaching Medicare eligibility, and some scientists believe life expectancies could expand by decades before the dawn of the next century.

2. Higher Spending per Capita.

In 1970, only a few years after Medicare was established, annual per capita Medicare spending was only $385. Today it is more than $12,000 and will hit $19,000 in a decade. As a percentage of GDP, the portion of Medicare that taxpayers have to bear will double in two decades – and then double again in the 50 years after that.

3. Rising Drug Prices.

In 2014, Medicare spending on drugs was 0.48 percent of GDP. This proportion will surge as specialty drugs displace spending on cheap generics. Specialty drugs accounted for one-third of drug spending in 2014 despite comprising only 1 percent of drugs prescribed. By the end of the decade, half of drug spending will be on specialty drugs.

Don’t count on the Trust Fund to keep Medicare solvent either. “The Trust Fund itself is little more than a filing cabinet of IOUs that are claims on future taxpayers,” warns Herrick. “There really is no Trust Fund in the traditional sense of one that represents assets that can be sold to alleviate the burden on taxpayers.”

Featured image credit: Flickr via cc

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