Free Essay. an Analysis of Medicare's Solvency Issues

Whereas the US health care industry is frequently defined as a market-based private system, recent research led by Martin et al. (2018) determined that the current US administration controls over 60 % of appending. Additionally, according to Chandra, and Garthwaite (2019), public insurers in the USA offer insurance to multiple groups, including the indigent, the disabled, as well as the elderly. Among all the insurers within the USA, Medicare, which gives insurance to elderly persons mainly those aged more than 65 years (Castro, 2018), as well as a subgroup of individuals with disabilities is the most advanced and still expected to further expand within the near future because of the changing demographics (Chandra & Garthwaite, 2019). Due to the comprehensive coverage of the entire nation, Medicare's contemporary coverage operations, as well as its coverage decisions, along with the reforms associated with the system's framework, will most likely face significant market-wide issues (Chandra & Garthwaite, 2019). Furthermore, even though most of the current Medicare trustees already remitted to the program for decades or years while working (Castro, 2018), the current American workers are still funding the trusts, which pay out the current benefits. As such, the funds are continually subsidizing the health care of the previous generation (Castro, 2018). Unfortunately, recent assessments project that the HITF (Hospital Insurance Trust Fund) will highly likely turn out to be insolent by 2029, possibly collapsing all programs that the previous generations have paid for several years. As such, it is imperative to evaluate the current solvency issue of Medicare to establish possible solutions for the concerns.

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Overview of the Structure of Medicare

Before analyzing the solvency issues associated with Medicare, it is imperative to assess Medicare's premier on its structure to gain an understanding of the system's funding, which can potentially assist in determining the solvency issues associated with the program. Similarly, Castro (2018) suggested that the understanding of Medicare's solvency concerns initially necessitates an acknowledgment of the program's sources of costs and revenues. Like most governmental systems, the costs, as well as the revenue for Medicare, particularly concerning its structure, are variable. For instance, costs can potentially fluctuate because of mortality rates, enrollment rates, as well as health care prices. Likewise, revenue can potentially fluctuate with the taxes received by the federal administration which also fluctuates based on labor and wage participation (Castro, 2018). As such, this section of the essay will evaluate Medicare's structure to gain an understanding of the program's funding, which is crucial in acknowledging the solvency issues facing Medicare.

As mentioned above, Medicare is considered the single leading social insurance system across the globe, with a consistent increase in spending over time. For instance, the payments associated with Medicare in 2017 rose to approximately $702 billion, from about $502 billion which was highlighted in 2007 (Castro, 2018). This funding is elated to different parts of the Medicare program, including Parts A, B, C, and D. Part A of the program offers insurance mainly for services provided in healthcare institutions, especially for every person aged more than 65 years. Part B offers insurance for services provided by physicians in healthcare institutions and comprises of a premium that is discreetly adjusted by salary. Part D of Medicare offers insurance only for prescription medications. Unlike parts B and A which are overly operated by the American administration, part D is funded by the American administration; however, private insurers administer plans while individual enrollees account for some share of the premium (Castro, 2018). Currently, the portion of overall earnings for parts A, B, as well as D has shifted, with expenditure on fragments D and B increasing from 11-14 % and 41-44 %, respectively (Chandra & Garthwaite, 2019). However, Chandra and Garthwaite (2019) also noted that spending on component A has substantially decreased from approximately 47 to 42 %.

The final section of the Medicare structure includes part C, which is frequently described as MA (Chandra & Garthwaite, 2019; Castro, 2018). This part was established during the 1970s principally as a charitable management care form of the Medicare program, where private companies obtain risk-adjusted capitated compensation from the US administration, which is financially accountable for the Medicare expenditure of every enrollee. Furthermore, the spending on part C grew from 2007 -2017, represented by an increase from 18 % to 30 % ($210 billion) of the overall Medicare benefit expenditure (Chandra & Garthwaite, 2019). Currently, approximately one-third of Medicare recipients belong to the MA program, even though there is a geographical variation within the program's penetration (Chandra & Garthwaite, 2019).

It is also essential to mention that approximately 9.2 million beneficiaries of the Medicare program are entitled to Medicaid that offers insurance premiums for portions A and B (Chandra & Garthwaite, 2019). Over the previous decade, the spending of Medicaid's section of part A has increased by approximately $100 billion US dollars to about $300 billion, whereas the spending on portion B grew by approximately $150 billion to about $300 billion. Furthermore, whereas the expenditure on Part D increased by $50 billion, the spending on portion D expanded by about $150 billion to approximately $200 billion during the same period (Chandra & Garthwaite, 2019). According to the analysis of Cubanski, Neuman, and Freed (2019), the entire program expanded by more than $407 billion within the last ten years, and the size of the recent Medicare system was reported as $ 605 billion representing approximately 15 % of the overall US federal budget as illustrated in the figure below:

Analysis of Medicare's Expenditure Growth

During recent years, the expenditure of Medicare has expanded more sluggishly compared to the previous years. For instance, the approximated annual growth of Medicare expenditure from 2010 to 2017 was about 1.5 % per beneficiary compared to the previous 7.3 % reported between 2000 and 2010 (Chandra & Garthwaite, 2019). Even though the new slow rate of growth of the program's expenditure, the altered demographics in the US population in part suggest the notion that the total expenditure could begin to rise within the near future. For instance, Chandra and Garthwaite (2019) argue that besides the aging group of the US population, novel technologies, as well as the increased intensity of care, and utilization of services, have directed actuaries to estimate that the future's growth in spending may rise at a rapid rate compared to the past period, where the estimated total outlays are anticipated to grow from the $583 billion to $1.26 trillion between 2018 and 2028 respectively. This projection implies that alterations in changing demographics can potentially have a substantial impact on Medicare's annual growth rate in expenditure.

Moreover, Chandra and Garthwaite (2019) argued that Medicare's annual rate of growth could potentially increase by 7.5 % by 2025 compared to the previously reported 4.5 % between the years 2010 and 2017. These statistics appear consistent with the findings of Cubanski et al. (2019), which indicate an average yearly growth of the net Medicare expenditure of 4.4 % between the years 2010 and 2018. Additionally, Cubanski et al. (2019) reported that each beneficiary's average growth in Medicare's expenditure was 1.7 % annually between 2010 and 2018, compared to the approximately seven percent annual growth indicated between the years 2000 and 2010.

According to the most recent report published by Cubanski et al. (2019), the CBO (Congressional Budget Office) projects Medicare's spending to double within the next decade, measured in total earnings from both insurances as well as other offsetting receipts. Most fundamentally, the CBO estimates Medicare's overly expenditure to increase from the current $630 billion to about $1.3 trillion US dollars in 2029 (Cubanski et al., 2019). Additionally, Cubanski et al. (2019) suggested that between 2019 and 2029, the overall spending of Medicare can potentially increase mainly as the portion of the USA's Federal budget from approximately 14 % to about 18 %, while the country's economy is projected to expand from 3 % to about 4.1 % of the GDP (Gross Domestic Product). Chandra and Garthwaite (2019) suggested that the excess costs per beneficiary associated with health care in the US will account for about sixty percent of Medicare's expenditure, as well as the spending of Medicaid, along with the subsidies for the ACA (Affordable Care Act) marketplace insurance program, while the elderly persons will account for an average of 40 % of the expenditure.

This paper argues that Medicare's unique financing structure, in part, promotes the utilization of the system of more resources compared to other government-funded operational systems. For instance, the other public players like Medicaid are inhibited by the incapacity of the Federal administration to operate budget deficits. Chandra and Garthwaite (2019) reported that the Medicare framework is financed from beneficiary premiums, payroll taxes, and general revenues (14 %, 37 %, and 41 % respectively), even though it is additionally financed in minimal portions by the transfers from states, as well as by the taxes from Social Security interests and benefits. Most fundamentally, parts A, B, as well as D, are financed by different clusters of these sources.

Analysis of Medicare's Solvency Issues

One of the ways of gaining insight into the current condition of Medicare funding includes examining the solvency projection and issues of the MHI (Medicare Hospital Insurance) trust fund where component A benefits are remunerated. According to Cubanski et al. (2019), part A benefits are generally paid out of the MHI trust fund, and this signifies one of the methods for obtaining Medicare's financial status as it only emphasizes on Component A of the Medicare program. Most fundamentally, the financing of component A is primarily obtained from salary taxation.