Baby boomers, Medicare march into increasingly uncertain future
The futures of the baby boom generation and Medicare are inextricably tied.
The government program provides health insurance for the majority of people 65 or older at a time when their health care needs tend to explode. That's particularly true for baby boomers, who continue to enter their retirement years with more chronic health problems than previous generations.
The number of boomers and their numerous health issues will increase demands on Medicare at a time when the ratio of people paying into the program versus those receiving benefits is at an all-time low — and getting worse.
But Medicare is in no immediate danger, said John Lovelace, president of government programs for UPMC Health Plan.
“The worry is really the long-term worries,” he said.
In 2015, Medicare spent $647.6 billion to provide coverage to 55.3 million people, according to its trustees' 2016 annual report. Worker contributions to Medicare, premiums paid by retirees and a few other funding sources provided $644.4 billion in revenue.
The program covered the $3.2 billion gap with money in its savings account, which dwindled to $263.2 billion.
By 2025, Medicare will cover 73.2 million people — a 32 percent increase, according to the report.
The Hospital Insurance Trust Fund, which covers Part A expenses such as hospital stays and hospice care, will be drained by 2028, the report projects. Medicare then will have to rely on its annual income, which trustees estimate will cover about 87 percent of expected costs.
The Supplementary Medical Insurance Trust Fund covers Part B expenses, such as physician fees, outpatient procedures and home health. It also covers Part D, which subsidizes drug insurance coverage.
That trust fund is in better shape, but only because it draws money from general revenue to make up for shortages from premiums and other revenue shortages. Its reliance on general revenue is projected to increase during the next couple of decades.
The Part A trust fund was doing well until 2008, according to the report. Annual revenue often covered — and sometimes exceeded — the amount paid out in benefits.
In 2008, the fund took a nosedive and hasn't recovered, mainly because of the Great Recession, said Stephen Foreman, a health care economist at Robert Morris University.
“People weren't paying Medicare payments when they got laid off,” he said.
The economic downturn also encouraged some baby boomers to retire, which drove up Medicare costs at a time when revenue was faltering, he said.
Although the economy improved and more people are paying into Medicare again, baby boomer retirement rates continued to increase. Costs escalated and savings kept plummeting, Foreman said.
Part B is financed mainly through a combination of general tax revenue and premiums paid by Medicare recipients. While the fund is not facing insolvency, Congress faces pressure to raise premiums, he said.
“It's going to get worse,” Foreman said.
One factor that could reduce pressure is the growing popularity of the Medicare Advantage program, which allows private insurers to offer retirees a managed care plan that reduces their risk of high health bills by capping maximum out-of-pocket costs.
About 11,000 people turn 65 every day, and the number of people 65 or older is projected to increase by 38 percent by 2025, said Dr. Rhonda L. Randall, chief medical officer of UnitedHealthcare Retiree Solutions, which offers Medicare Advantage and supplemental insurance plans.
About one-third of people on Medicare have chosen Medicare Advantage. But among people turning 65, the ratio is closer to 50 percent, she said.
“The younger seniors seem to be comfortable with it and (are) choosing it at a higher rate,” she said.
Younger seniors tend to like Medicare Advantage because it's more coordinated than traditional Medicare, said Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation who focuses on health insurance coverage.
“It's a little bit more like your experience with a work (insurance) plan,” she said.
About 45 to 50 percent of retirees in Western Pennsylvania have picked Medicare Advantage, which the UPMC Health Plan also offers, Lovelace said.
Another factor that could improve the program's finances is a shift from fee-for-service to value-based payments, he said.
In a fee-for-service model, providers get paid to perform procedures even if they have to do them again.
“The incentive is to do volume,” he said.
In a value-based system, the provider gets a set amount of money. If treatment is less expensive, they keep the extra money. If it's more, they absorb the costs.
While that switch and other cost-saving measures haven't been around long enough to accurately predict their effect on Medicare, they seem to be reducing the growth in health care costs, he said.
A third factor is that health care is switching from hospital care to less expensive home-based care, Lovelace said.
“There will not be as many hospitals 10 years from now because they won't need as many hospitals,” he said.
Most people prefer staying at home, so the trend is driven as much by patient preference as by insurers trying to contain costs, he said.
That is particularly evident as people reach the end of their lives and more opt to spend their final months at home or in a hospice.
“Most people don't want to die in ICU hooked up to tubes,” he said.