4 myths about Medicare’s financial future

and why they're wrong

There has been much conversation about Medicare’s financial outlook and whether it can withstand the influx of beneficiaries now – and in the future. As a large part of the country’s federal budget, Medicare will need to make changes now so it can continue in the long-run.To thrive in the future, Medicare will need to offset the debt being created today. Here are the top four myths about Medicare’s financial future.

1. Medicare is going broke.

No, Medicare is not going broke. News headlines that claim “Medicare is bankrupt” often discuss rising average spending per beneficiary. Monetary deductions made throughout one’s working career are stored in a trust fund to cover Medicare Part A. If the beneficiary exceeds that amount and Medicare has to pay the amount it is exceeded by, Medicare’s spending increases. As a whole, if Medicare is overspending too much, it won’t have enough funds to pay for its beneficiaries.

At the current rate, Medicare will be able to pay for hospital insurance (Part A) for beneficiaries in full until 2028. Adjustments will be required between now and then to continue the high level of coverage that exists today.

2. Rising healthcare costs will cap Medicare’s ability to cover beneficiaries.

Yes, Medicare spending is rising rapidly as a result of increasing overall health care costs. Beneficiaries above the age of 80 account for a large portion of Medicare’s spending and by 2050, their count is expected to triple.

However, all is well. The rise in beneficiary count will simply require Medicare to make adjustments similar to those when the Affordable Care Act passed. Additionally, Medicare Part B and Part D premiums are adjusted every year to account for rising usage.

3. Medicare’s spending will increase rapidly over the next decade.

In relation to the entire federal budget, Medicare spending will increase gradually over the next ten years. In 2016, Medicare’s spending as a part of the entire federal budget was just over 15%. In 2017, it is estimated to be at 14.9% and increase at a slow rate until 2027 at 17.8%. This gradual and predictable increase will help prevent premiums from skyrocketing for the beneficiary.

4. Part D (prescription drug plan coverage) won’t exist in the future.

Although drug coverage funding is one of the largest challenges for Medicare, it is not projected to die out in the foreseeable future. One reason for rapid growth in Part D spending is the rising cost of specialty drugs.

Currently, Medicare overpays pharmaceutical companies for things such as drugs prescribed to low-income beneficiaries. Just as with Medicare Part B, premiums for Part D are adjusted each year to help share the costs of prescription plans.

While it is not wise to guess what will happen to Medicare in the future, we know it is as strong as ever. Since Medicare’s strong financial roots are driven by the beneficiary, funding will likely always be there. The question is just how much funding will there be in the future and how will any underfunding affect your premiums? For the latest in Medicare news, notes, and advice, subscribe to the UMA Monthly Medicare Update.


www.medicare.gov
www.cms.gov
http://kff.org/medicare/issue-brief/10-essential-facts-about-medicares-financial-outlook/
http://www.cbpp.org/research/health/medicare-is-not-bankrupt