Drivers of Medicare spending largely mirror those that contribute to spending growth in the nation’s health care system overall. Specifically, service-related changes, such as changes in price and volume, as well as advances in medical technology, contribute to Medicare spending growth. Just looking at prices, for example, most Medicare Hospital Insurance (Part A) providers receive automatic inflation-based yearly updates, often referred to as "market basket" updates. The rising incidence and prevalence of chronic disease in the United States also ripples through to Medicare spending.
"Medicare beneficiaries’ medical needs, and where beneficiaries undergo treatment, have changed dramatically over the past two decades," according to an article in the Journal of Health Affairs examining the period between 1987-2007. "Twenty years ago, most spending growth was linked to intensive inpatient (hospital) services, chiefly for heart disease. Recently, much of the growth has been attributable to chronic conditions such as diabetes, arthritis, hypertension, and kidney disease. These conditions are chiefly treated not in hospitals but in outpatient settings and by patients at home with prescription drugs. Health reform must address changed health needs through evidence-based community prevention, care coordination, and support for patient self-management.”
"The contribution of increased enrollment and an aging population to growing Medicare spending, however, is modest relative to the effects of rising health care costs," according to a Kaiser Family Foundation study. It is the increased cost of testing and treating: more people are getting more things done to them and for them. "CBO (Congressional Budget Office) projects that increased program enrollment along with the aging of the Medicare population will increase Medicare spending from 4 percent of GDP in 2020 to 5 percent of GDP by 2035; however, when all factors affecting Medicare and rising health care costs are also included, Medicare spending is projected to rise to 7 percent of GDP that year."
A Kaiser Family Foundation study also reported that the "per capita Medicare spending increases as beneficiaries age. For example, in 2006, per capita Medicare spending for beneficiaries in the traditional fee-for-service program who were age 85 or older totaled $12,059, more than double the $5,887 average for beneficiaries ages 65 to 74.8. As the baby boom generation ages into Medicare, however, the age mix of the program’s beneficiaries will initially be younger than it is today. Only after 2030, when the bulk of baby boomer beneficiaries reach an older age level, is age mix expected to contribute more to program spending than it does now."
Why Is Medicare Spending Considered to Be Unsustainable?
What Type of Services and Which Beneficiaries Account for the Largest Portion of Medicare Spending?
How Much Does Medicare Cost? How Much Is It Expected to Cost in the Future?
What Does Medicare Have to Do With the Federal Budget Deficit?
What Percentage of Federal Outlays Does Medicare Represent?