Medicare’s Financial Future

Medicare Financing must be transformed for its stakeholders to manage it effectively and continue to provide adequate health insurance to its beneficiaries. Healthcare is becoming more expensive, necessitating new revenue streams. Also, policymakers would prefer to restructure the program to increase its effectiveness. Adoption of such proposals would have a direct impact on the amount of money needed for the program.
This paper examines three main areas that should be monitored in the future to ensure that Medicare services are delivered more effectively to its beneficiaries. The cost of healthcare is on the rise, and this calls for new revenues. Additionally, those involved in policymaking would opt for the restructuring of the program in a bid to improve its efficiency. Adopting such proposals will directly translate to the amount of money required for the program.

This paper reports to explore three major areas to keep in check for better delivery of Medicare services to its beneficiaries in the coming future. Financing needs for both the normal and restructured programs are at the forefront. Secondly, revenue sources for Medicare are important in giving the insight of the current system projections. Finally, yet importantly, options for financing Medicare will be examined to help identify which mix would best spearhead the performance of the program.

The report further discharges some proposals that will be worth implementing to ensure efficient and sustainable financing of the future Medicare. Not only have has the paper given the advantages of these proposals, but it has also looked into the cons of the particular propositions.


The history of the Financing of Medicare goes a long way back in 1965 at the time of its onset. At this period, the HI Trust Fund funded the first part of it while the SMI Trust Fund (Brown, 2013) financed part B. The provisions of 1965 Act, underwent the amendment in 1972, and this pushed up Medicare eligibility. The changes affected those who have enjoyed SSDI for two years as well as to persons with the renal disease at the end-stage. Since then many changes have occurred over time, which as a result, have led to the increase of financing needs for the Medicare.

The funding requirements of the second part of the program have also been changing over time. Back in 1972 for example, the Congress legislated a legal clause that restricted increment of the premiums of Part B never to exceed the cost of living (Chao, 2014). Since Medicare often deduct premiums of Part B from the per-month security checks, the amended provisions guaranteed Medicare beneficiaries need to check if the values would either remain constant or increase over the years.

About concern on the revenue sources for the Medicare, reports show that the share of Medicare beneficiaries has risen recently. Despite beneficiaries premiums are still being recorded below the initial level of the program, expectation illustrates that the revenue will continue increasing in amount as a result of the implementation of shifting home health benefits from Hospital Insurance to SMI. Furthermore, the total contribution by the beneficiaries in financing the program has inflated tremendously since the 1980s. The rise attributes to the growth of Medicare bill incurred from Part B.

In the recent and current status of Medicare Spending, the growth had been slow over the last decade. A report by OACT revealed that the growth of Medicare spending 2010-2014 averaged 4.1% annually, which is low in comparison to the previous 2000-2010 record of 9% (Brown, 2013). However, about per capita spending, there is a lower growth in both cases. After passing the ACA law and took effect in 2015, suggestion indicates that the spending would be lower by $1,200 throughout the subsequent baselines. In addition to the 2015 ACA, the powers of the 2011 Budget Control Act applied to reduce payments to the provider and Medicare plans.

Going by the trends, we must then be concerned with the future. The net financial outlay projection for Medicare spending for 2015 was $527 billion, and the value was to increase progressively over the years to $866 billion at the dawn of 2024 (Brown, 2013). It means we still live within the boundary of this projection and it is no doubt that the future financing of Medicare is larger than the current and the past.

As far as the per capita is concerned, Medicare spending projection presents a faster growth rate value of 4.1% over the captured period (Chernew, 2005). However, prediction of this value is never to assume a consistent growth all through. The increase in the per capita Medicare spending was staggering at the initial years. According to the OACT, the per capita growth rate will be higher in future for Part D because of the costly specialty health care.

Future Financing of Medicare

The primary sources of Medicare funding are the beneficiary premiums, general revenues, and general revenues.These sources of finance are very scarce; unfortunately, there is an increasing growth of Medicare Spending because of many factors (Brown, 2013). Some of the factors entirely relate to the overall health care system. Factors connected to the health system service cost, the volume as well as the complexity of the care services, and medical technology involved (Aaron & Butler, 2014).

One of the most outstanding issues needs timely considerations while considering the underlying development in the capacity and rate of fitness attention services is how Medicare remunerates the physicians. The use of SGR in formulating payment schedule happens in a manner that the Medicare Program cost should be consistent with GDP (Aaron & Butler, 2014). All the CMS are bound to pay the doctors by computing the salary in line with the SGR. It is, however, unfortunate to realize that the application of SGR has yielded little result as far as the control of Medicare Spending is concerned (Chao, 2014). The action of the Congress to override proposed cuts have rendered the law ineffective.

Many challenges associated with the Medicare program financing are likely to occur in the future. In fact, several debates on the possible solutions for the high spending as well as the impending insolvency have hit the attention of many people. Among the options are increments of revenue, raising beneficiary contributions, reducing payments to the providers, restructuring the program and raising the Medicare eligibility age. All these propositions could significantly help in curbing the adverse effects that would otherwise affect the future of financing. A lot more suggestions can still apply depending on their effectiveness.

Possible Solutions to Future Medicare Financing Problems

Raising the Eligibility Age for the Medicare

Looking into the specific solutions deeply, we may start with the aspect of rising the suitability stage of the Medicare beneficiaries. Instead of the initially preferred age of 65, the Congress could opt to push it to 67. It is indubitable and well known to the Americans that the Social Security and Medicare from the time of inception, benefits those who are retired (Aaron & Butler, 2014). Moreover, raising the eligibility age for this benefit will be a wise decision in cutting the cost since only those belonging in the bracket of the retirement age will access the services.

On the contrary, raising the eligibility age would translate negatively to the federal government in that very little saving will be held while the total cost of health care will go up. The general impact of this is the financial burdens on the many vulnerable seniors. Additionally, when the government’s saving goes down, the cost of doing businesses shoots up, and the overall effect will be felt nationally (Aaron & Butler, 2014).

Raising the Medicare premiums

Raising the Medicare premiums for the beneficiaries from high-income households is also another possible way to boost the future Medicare financing. Most of the Medicare beneficiaries pay an isolated premium for visitation of doctors on a monthly basis. Persons receiving more than $85, 000 yearly as well as couples making above $170,000 annually always pay more rates than the standard level depending on some their respective incomes (Aaron & Butler, 2014). The best avenue for generating premium revenues without imposing too much burden on the poor seniors.

Contrarily, it will be a little difficult to apply this strategy since the high-income beneficiaries are already engaged in paying more to the program even before their retirement. Also, they also pay heavily for parts B and D of Medicare. Furthermore, it should not be restricted to the higher-income people because they are also beneficiaries of other Insurance services, which also need their contributions (Aaron & Butler, 2014). Consequently, some the targeted high-class bonfires may choose to unsubscribe from parts B and D of Medicare and resort to other relatively cheaper private coverage. If all or many of them decide to take those directions, abandoning will occur in the field of Medicare

Transforming Medicare into Premium-support Plan

Under this position, those who are eligible to be Medicare beneficiaries would acquire their insurance cover through private plans other than the traditional Medicare. The recipients, in this case, would have a choice to opt for the federal government at a fixed amount, which would incur one of the competing plans available in which part of the premium will be. Seniors would then be required to pay for any deficit in the event the premium value exceeds the state’s contribution. According to Aaron & Butler (2014), this arrangement is beneficial in the sense that it will keep the Medicare in check and ensure that it stay within the stipulated budget since it is expected to give seniors the opportunity to have a choice as well as overseeing the budget expenditure.

The support plan, however, is ineffective in the sense that with time, the cost of health care will rise, which would lead to the increment of premium charges. However, since the government contribution remains fixed, the elderly beneficiaries need to dig deeper into their pockets beyond their means. It is risky!

Drug Manufacturers to allow significant Discounts in their supplies to Medicare

Currently, it is a requirement by the law for the pharmaceutical companies to allow discounts to for prescription drugs bought by Medicare and its beneficiaries. When this proposal takes effect, Medicare will save approximately $112 billion within the next ten years (Huesch, & Ong, 2016). Although it may sound simple, it would be an effective avenue of saving money hence it would help Medicare to offset the budget deficit of the federal government.

The benefit of this proposal may not necessarily favor everyone. When drug manufacturers are restricted to allow discounts for the Medicare program, they will hike their prices for other private sectors. The non-beneficiaries of Medicare need to compensate for the discount offered (Aaron & Butler, 2014). However, if the manufacturers do not meet their target revenue sufficient for carrying out medical research, discoveries of the solutions to the emerging health problems will be limited thus raising the cost of health care even father. Therefore, careful considerations are vital while implementing this kind of proposal.

Sharing of the health care for both home, skilled-nursing facility and Laboratory services

Medicare currently pays for the beneficiaries all the cost incurred in home care services (upon prescription by the doctor), and in the case of a skilled nursing facility, they pay fully the cost incurred by the beneficiary in the first 20 days. No cost sharing charges exist at all by Medicare on laboratory services as opposed to the 20% share that some people would propose for the beneficiaries (Chao, 2014).

The imposing cost-sharing arrangement on the recipients would indeed encourage them to make proper use of the services. Also, copayment will reduce the cost incurred by Medicare, and as a result, the money saved will take the course of sustaining the program in the long-run (Aaron & Butler, 2014). Other health care plans alongside the Medicare will also help in cutting the cost thereby reducing the financial burdens of sharing cost on the beneficiaries who enjoy multiples of insurance plans.

On the other side, cost sharing may not be beneficial at all but would instead become more disadvantageous to the beneficiaries, especially those who come from low-income households. Similarly, those recipients who do not have other supplementary coverage plans will also feel the pinch should this arrangement put in place and take effect (Aaron & Butler, 2014). The worst thing that could happen is that such beneficiaries may not afford to get their contribution (share) and as a result fail to access the medical care they intended to receive. Whenever this happen, the mission of Medicare of delivering adequate Healthcare cover to its beneficiaries faces compromises. Its reputation too also is tarnished in the face of the public.

Generation of New Revenues through Increased Tax Rate of Payroll

Payroll Tax constitutes the primary source of financing the part A of the Medicare program. Each of the employers and employees contributes 1.45% of the Medicare earnings. Expert projection reveals that by 2024 there will not be enough funds for Medicare to finance the likely beneficiaries’ hospitals bills. Raising the tax level on payroll would add up more revenue; take for an instance those people on the annual payroll of $ 50,000 would contribute an additional amount of $250. In this way, Medicare will be in a position to meet the obligations of the beneficiaries. The insurance cover by Medicare is usually subject to the deficit on a long-term basis. Filling this gap would occur by the additional revenue raised as by an increase in taxes on the payroll (Aaron & Butler, 2014). Ideally, there no point to claim that Medicare is in dire crisis, employing this proposal alone would be enough to keep the program financially stable in the possible future.

Other speculators have opposed this proposal in view that increase in payroll taxes would not possibly solve the long-term financial problems of Medicare. For them, transforming the suggestion of tax increment into practice would only deteriorate the economy (Aaron & Butler, 2014). Transferring a large portion of the economy to Medicare will subject the future generations to poor living standards with the maintenance of infrastructure not properly maintained. Some other proposals would work better than this.

Reducing Supplementary coverage while increasing the Plan Costs

The Medicare program needs prompt restructuring, and its plan diverts towards improving the coverage for major ill-health conditions and impose the cover on only a small range of expenses (Chao, 2014). This transformation will lower Medicare costs and premiums as well as improving Medicare insurance cover on the beneficiaries. In contrast to the proposed benefit, it would not be financially sound to increase insurance premiums while reducing the additional coverage (Aaron & Butler, 2014). Again, the proposal does not guarantee the coverage of insignificant health care services. For this reason, there are high possibilities of disregarding the motion on the grounds of merely imposing unfair cost-effect on the beneficiaries of low-income class.

Raising Medicare Premiums across all the social-economic classes

The monthly premiums, which most of the Medicare beneficiaries pay, cover approximately 25% of the program’s spending. Increasing Medicare premiums on both the working and the retired beneficiaries would help in boosting the revenue of Medicare a great deal. Some retired seniors who are earning a lot from their personal businesses more than those who are still on the payroll also exist within the healthcare field. Through this reasoning; an increment of premiums charged for such older people will occur. Perhaps the increment in premium revenue through this way could help in filling some financial gap.

Even though a section of the upper-income beneficiaries can afford to pay the usual premium, a great percentage would not wish to put up with that. In fact, even the standard premium amount still appears to them as a burden. The pinch of this increment will even be worse in the case of those living with disability and the elderly whose incomes are lower. The across-the-board premium increment is therefore not a rational idea for implementation (Aaron & Butler, 2014).

Strengthening the IPAB

IPAB is a health care group constituted of 15 medical professionals assigned with the duty of recommending corrective measures that would help to offset the growth of spending by Medicare if the growth is proved to exceed some detailed level. This body has the jurisdiction to bring down Medicare payments (Song, & Shi, 2016). Many people firmly believe in IPAB because it is in a position to regulate the growth of spending by Medicare without applying any rationing procedure on health care services (Aaron & Butler, 2014).

The creation of IPAB under a new legislation was set to help in capping Medicare spending. Therefore, the growth is expected to be lower than the economic growth. The disadvantage of this is that whatever decision the body makes is final and any other body, not even the courts of law, cannot thwart the cut on the Medicare spending.

Restructuring the Deductibles and Copays of Medicare.

Part A, of Medicare, helps in paying for the skilled nursing facility service, in-patient, and the home health care. Part B on the other hand, caters for outpatient services and compensates the physicians (Aaron & Butler, 2014). While there is no cutting of cost in part A for hospital stays below 60 days, part B services are subject to annual deduction of $140. The beneficiaries also have to pay 20% of the cost after the deduction takes place (Aaron & Butler, 2014). Restructuring this arrangement exist by combining the two parts and subjecting them to a unified cost-sharing amount and a rare coinsurance applicable to all of their services. Assuming this kind of restructuring could be helpful in simplifying and streamlining the insurance benefits (Song, & Shi, 2016). If capping on the spending incorporates within the redesign, the high-consumption beneficiaries will enjoy an added advantage regarding financial protection against costly healthcare services (Aaron & Butler, 2014). Moreover, restructuring would also help in the reducing the costs on supplemental insurance plans. Further arguments indicate that this restructuring plan would enhance federal government savings by sensitizing the beneficiaries on the on the prices thus leading to a more harmonized Medicare savings.

It is no doubt that many beneficiaries would have to dig a little deeper into their pockets to meet the payment obligation as set out by the redesign. In connection to that, lower-income beneficiaries or those without supplemental insurance plan would be adversely disadvantaged regarding having access to the health care services (Aaron & Butler, 2014). The other possible upshot of the implementation of this proposal is that the seniors could deliberately withdraw from subscribing to Medicare Insurance on the grounds of evading and incurring cost-sharing expenses. Eventually, the state would have poor reports of health outcomes and higher cost of Medicare in the end.

Addressing the Physicians’ SGR payment formula

The SGR formula establishment took place in 1997 with the intention of reducing the cost of health care services by expressing the amount of monetary compensation offered to the Doctors attending to the Medicare patients. Congress has however impeded successful implementation of the SGR for several times (Aaron & Butler, 2014). Some proponents would suggest that the primary physicians’ payment a frozen as the rates of specialties undergo temporary reduction. In an attempt to add value on the SGR, it would be wise to substitute it with some other payment rules, which would inspire more doctors to deliver on the primary care. The rule of SGR should be scrapped out and allow a more efficient rule that will be favorable to the physicians and nurses to take effect.

Imposing heavy penalties on fraudulent health care

Fraudulent activities in health care may, for example, take the form of illegal transmission of information regarding Medicare patient and providers. Increasing Penalties against the culprits of health care would possibly help to discourage further incidences of this nature. In turn, it would result in tremendous savings (Young, 2013). However, it is very hard to show empirically that hostile sanctions would stop health care frauds (Aaron & Butler, 2014). It would be quite ironical to find that the fraudsters not scared by the sanctions at all. Moreover, threats of hostile sanctions may instill fear on the innocent physicians as well as providers for the feeling that they malicious prosecution. Some would also stop taking part in Medicare to evade audit expenses.

Allowing quicker Access Biologic Drugs

Biologic drugs are usually very expensive and used to cure complex diseases like multiple sclerosis and cancer. Currently, the biologic drugs have significantly penetrated through various markets. Generic medications are relatively cheaper regarding very lower retail cost. This strategy would save much money (Young, 2013). As far as the new law regarding healthcare is concerned, it allows the manufacturers of generic drugs to trade on the market for 12 years without completion for up to 12 years. This period needs reduction to promote minimization of prices and maximization of savings for both the beneficiaries and Medicare. On the contrary, reducing the exclusivity period for the market could slow down the rate of developing new drugs.

Enrolment of all Medicare and Medicaid beneficiaries to a Managed Care

Medicare and Medicaid in combination cover about 9 million of older adults from low-income households and those living with a disability (Aaron & Butler, 2014). This population is composed of people with poor health status thus higher costs. Enrollment of all those from the low-income class occurs in the care plans whereby the doctors will have the mandate and the duty to provide the necessary attendance needed. The idea encourages the enrollment of low-income earners to the various available managed care plans in order do away with the confusion on the insured factors and cut down the costs of Medicare programs (Aaron & Butler, 2014). Efficient care management would ensure proper utilization of healthcare services. When instituted properly, the programs would help to save much money, and the savings could contribute in introducing services that are more patient.

However, this measure is divisive along the lines of social classes. There is no confirmation if such plans would surely result in cost reduction. Some studies have even claimed that enrollment of Medicare beneficiaries in managed care plans would raise up the general cost (Aaron & Butler, 2014).

Prohibition of induced charges on Delays

Preventing drug manufacturers from imposing charges on delays would facilitate faster accessibility of generic medicines at a relatively cheaper cost (Aaron & Butler, 2014). With this arrangement in place, there will be high chances of saving money. On the other hand, prohibition of the pay-for-delay agreements would adversely affect the drug companies since it would be costly for them to cater for legal charges on patent lawsuits.


The increasing Medicare spending growth rate is an issue that needs early intervention measures to ensure maintenance and adequate coverage in all seasons. All the proposals discussed above requires further evaluation, and their effectiveness weighed to ensure adoption of only those that are cost-effective in the future financing plan.


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