Medicare at Risk: Visualizing the Need for Reform

The number WORKERS PER MEDICARE BENEFICIARYof workers 4.6 Medicare at Riskper Medicare Seniors receive more in Medicare benefits than they pay inbeneficiary edicare spending 4.0 Many believe that seniors pay for their own Medicare benefits, but in fact, current workers 2021: $7,989 s falling finance current enrollee benefits. In addition, most Medicare beneficiaries end up receivinguseholds is rising hortfall PERCENTAGE OF GDP 3.3 $8,000 than what they paid in to the system. more 2.8ederal % 7% $400,000ore of household income thanWorkers’6% contributions to FIGURES ARE FOR BENEFICIARIES $357,000 $357,000 Total Benefitsnding VISUALIZING THE NEED FOR REFORMMedicare aren’t set aside the ll continue. Absent reform, WHO RETIRE AT 65 IN 2011 AND Received 2.3 %ortfall is the EARNED THE AVERAGE WAGEorbrings ineconomy-crushing neweither own retirement— Projecteden the $300,000 m their % 5% Total Federal Deficit $6,000hey pay program. s in the for current spends onfits. Even 4.1% $238,000 DIFFERENCE % 4% 2010: $170,000 $188,000 $297,000 eneficiaries. A main cause realistic policies in $200,000 fshortfall Medicare’s growingustained, by % 3% $4,136RICAN HOUSEHOLD $110,000 $128,000nsolvency is that the ratio1 percent of . 2% 3.3% $100,000 Paid by f workers to beneficiariesMedicareway federal (81% of total $119,000 Beneficiary argeting Shortfall $60,000 $60,000 $60,000s falling. 1% federal deficit) $0stees 2012 Single Male Single Female One-Earner Two-EarnerBudget Office, 0% Couple Couple 2012 2015 2020 2025 2030 2035 2040 1965 Source: C. 2001Steuerle and Richard B. Fisher, “HowFoundation, August 2011. Chart 2 • Medicare at Risk heritage.org Eugene Reforming Our Senior Entitlement2011 Lifetime Benefits and Contributions Point the Way Toward Programs,” NIHCM 2020 2030 Alyene Senger Chart 9 • Medicare at Risk heritage.org ource: Medicare Trustees 2012 report. March 2013 John W. Fleming Chart 3 • Medicare at Risk heritage.org 1985 1990 1995 2000 2005 2010 2015 2020

Medicare PERCENTAGE OF GDPspending is 14%growing fasterthan the rest of 12%the federalbudget 10% MedicareEntitlement spending is the All Other 8%main cause of long-term Non-Interestrunaway federal deﬁcits. SpendingMedicare is the fastest- 6% Socialgrowing program due to Securityretiring baby boomers and Medicaid,rising health care costs. % 4% Obamacare Subsidies 2%Source: Congressional Budget Office 0%(Alternative Fiscal Scenario). 2011 2015 2020 2025 2030 2035 2040 2045 2050 Chart 1 • Medicare at Risk heritage.org

Medicare shortfall PERCENTAGE OF GDPis driving federal % 7%deficit spending % 6%The Medicare shortfall is thedifference between themoney the program brings in % 5% Total Projectedand the money it spends on Federal Deficithealth care benefits. Even 4.1% % 4%assuming that unrealisticcost-containment policies incurrent law are sustained, by % 3%2040, Medicare’s shortfallwill account for 81 percent ofthe federal deficit. 2% 3.3%Addressing runaway federal Medicare (81%deficits requires targeting of total 1% Shortfall federalMedicare. deficit)Sources: Medicare Trustees 2012report, Congressional Budget Office, 0%extended baseline. 2012 2015 2020 2025 2030 2035 2040 Chart 2 • Medicare at Risk heritage.org

The number WORKERS PER MEDICARE BENEFICIARYof workersper Medicare 4.5beneficiary 4.0is falling 3.3Workers’ contributions to 2.8Medicare aren’t set asidefor their own retirement— 2.3they pay for currentbeneficiaries. A main causeof Medicare’s growinginsolvency is that the ratioof workers to beneficiariesis falling. 1965 2001 2011 2020 2030Source: Medicare Trustees 2012 report. Chart 3 • Medicare at Risk heritage.org

Longer life expectancy means longer enrollment in MedicareThe average life expectancy in the United States has increased since Medicare was created,but the program’s eligibility age has remained constant at age 65. As a result, seniors collectbeneﬁts for almost three times as long compared to when the program started. 79.5 080 YEARS OF AGE Average Life Expectancy 575 Years 70.2 15 years Enrolled in Medicare 070 5 years65 Age of Medicare Eligibility (unchanged at 65) Note: Some ﬁgures from 2009 Source: U.S. Census Bureau. re S e u r a through 2020 have been extrapolated.60 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Chart 4 • Medicare at Risk heritage.org

In projecting Medicare’s cost, more realistic assumptionsshow an even worse outlookThe Medicare trustees are MEDICARE’S TOTAL 75-YEAR Total: $36.9 trillionrequired to base their UNFUNDED OBLIGATIONS $35 TRILLIONprojections on current law asit is written. Theseprojections rely on $30 Total: $26.9 trillion $20.5 trillionunrealistic assumptions,such as Congress allowing $25staggering provider payment Outpatientcuts that will harm seniors’ $20 $14.7 trillion and Physicianaccess to care. The Servicesalternative scenario paints a $15more likely picture of the $9.7 trillionprogram’s cost. Either way, $10 $5.3 trillion Hospitalthe future is bleak. Insurance $5 $6.8 trillion Prescription $6.8 trillion DrugsSources: Medicare Trustees 2012 $0report, CMS Office of the Actuary. Current Law Alternative Scenario Chart 5 • Medicare at Risk heritage.org

The burden of Medicare spending 2021: $7,989on American households is rising$8000 $8,000Medicare is consuming more of household income than careever before, a trend that will continue. Absent reform, the efore,situation will soon require either economy-crushing new ion $6000 $6,000taxes or painful beneﬁt cuts in the program. 2010: $4,136MEDICARE SPENDING PER AMERICAN HOUSEHOLD ARE$4,000$2,000 1970: $129 $0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020Sources: Medicare Trustees 2012 report, U.S. Census Bureau. Chart 6 • Medicare at Risk heritage.org

Medicare benefits are paid for by working AmericansApproximately 88 percent of seniors’ Medicare benefits are funded by taxpayers. MedicarePart A is mandatory coverage funded by the payroll tax. But Medicare Parts B and D, whichcover outpatient services and prescription drugs, respectively, are voluntary and fundedprimarily by general revenue.40% 41% FUNDING SOURCES OF $549.1 BILLION 36% SPENT ON MEDICARE IN 2011 $223.3 billion30% $195.6 billion20% 8%10% $42.5 billion 3% 12% $19.2 billion $68.5 billion 0% General Current All Other Drawing Down Medicare Revenues Workers’ Medicare HI Beneficiary Payroll Tax Trust Fund Premiums ContributionsSource: Medicare Trustees 2012 report. Chart 7 • Medicare at Risk heritage.org

Seniors receive more in Medicare benefits than they pay inMany believe that seniors pay for their own Medicare benefits, but in fact, current workersfinance current enrollee benefits. In addition, most Medicare beneficiaries end up receivingmore than what they paid in to the system.$400,000 FIGURES ARE FOR BENEFICIARIES $357,000 $357,000 Total Benefits WHO RETIRE AT 65 IN 2011 AND Received EARNED THE AVERAGE WAGE$300,000 $238,000 DIFFERENCE $188,000 $297,000$200,000 $170,000 $110,000 $128,000$100,000 Paid by $119,000 Beneficiary $60,000 $60,000 $60,000 $0 Single Male Single Female One-Earner Two-Earner Couple CoupleSource: C. Eugene Steuerle and Richard B. Fisher, “How Lifetime Benefits and Contributions Point the Way TowardReforming Our Senior Entitlement Programs,” NIHCM Foundation, August 2011. Chart 8 • Medicare at Risk heritage.org

Obamacare raids CUTS IN MEDICARE DUE TO OBAMACARE, 2013–2022Medicare to payfor other new Hospital services $260 billionprograms Payment rates in $156 billion Medicare AdvantageProjected Medicare savings DSH* payments andfrom Obamacare don’t other Medicare $145 billionimprove the program. provisionsInstead, they pay for other Home healthnew programs created services $66 billionunder the law that aren‘t Skilled nursingeven for seniors. By slashing services $39 billionreimbursement rates Obamacare cutsinstead of introducing real All other services $33 billion $716 billionreform, the health law from Medicarejeopardizes seniors’ accessto providers. Hospice services $17 billion $0 $50 $100 $150 $200 $250 billionSource: Congressional Budget Office * Disproportionate Share Hospital, meaning payments that go to hospitals thatreport. serve a large number of low-income patients. Chart 9 • Medicare at Risk heritage.org

Cutting provider PHYSICIAN PAYMENT RATES 100% of Privatepayments to Insurance Paymentlower Medicare Ratescosts will hurt 80%access 75%Ratcheting down Medicarepayments to contain the 58% 58%program’s cost growth willlimit seniors’ access to care. 50%Medicaid, the governmenthealth program for the poor, Medicarealready sets provider Medicaid* 26%payment rates far below 25%private insurance, creatingsimilar barriers to care forenrollees. 0% 2012 2086Sources: CMS Actuary’s 2012Illustrative Alternative Scenario. * Average of all states. Chart 10 • Medicare at Risk heritage.org

Seniors face PERCENTAGE OF HOSPITALS, SKILLED NURSING FACILITIES, AND HOMEsevere access HEALTH AGENCIES THAT WOULD OPERATE AT A LOSS 45%problems 40%because of 40%Obamacare cuts 35%Obamacare makes deep 30%cuts to provider paymentsto offset the cost of new 25% 25%programs that aren’t forseniors. If these deep cuts 20%go into effect, manyproviders will operate in 15% 15%the red, making it verydifficult for seniors to 10%access their services. 5%Source: Medicare Trustees 2012 0%report. 2019 2030 2050 Chart 11 • Medicare at Risk heritage.org

Small Medicare PROJECTED MEDICARE SAVINGS DUE TO HERITAGE’S MEANS TESTINGreforms can make $200 2037: $179 BILLIONa big differenceKeeping Medicare “as weknow it” is unsustainable. $150A simple reform such asraising upper-incomebeneﬁciaries’ premiumsand gradually phasing outtaxpayer subsidies for the $100wealthiest retirees (about3 percent) would save 2014:hundreds of billions of $39 BILLIONdollars. $50Source: Calculations by the HeritageFoundation’s Center for DataAnalysis based on baseline data inthe current projections and dataprovided by the Peter G. Peterson $0Foundation. 2014 2015 2020 2025 2030 2035 2037 Chart 12 • Medicare at Risk heritage.org

Heritage plan MEDICARE SPENDING AS PERCENTAGE OF GDP 6%would rein in 6%excessiveMedicarespending Current LawHeritage’s comprehensive 5%Medicare reform wouldﬁnancially preserve 4.5% 5%Medicare for futuregenerations while alsoimproving it as aninsurance program for 4%America’s seniors. Heritage PlanSource: Calculations by the HeritageFoundation’s Center for DataAnalysis using data from the 3%Congressional Budget Office’s 2012Long-Term Budget Outlook. 2013 2015 2020 2025 2030 2035 2037 Chart 13 • Medicare at Risk heritage.org

The Health Care Intiative is one of 10 Transformational Initiatives making up The Heritage Foundation’sLeadership for America campaign. For more products and information related to these Initiatives or to learnmore about the Leadership for American campaign, please visit heritage.org.The Heritage Foundation is a research and educational institution—a think tank—whose mission is to formu-late and promote conservative public policies based on the principles of free enterprise, limited government,individual freedom, traditional American values, and a strong national defense.As conservatives, we believe the values and ideas that motivated our Founding Fathers are worth conserving.As policy entrepreneurs, we believe the most effective solutions are consistent with those ideas and values. 214 Massachusetts Avenue, NE • Washington, DC 20002-4999 (202) 546-4400 • heritage.org

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Medicare at Risk: Visualizing the Need for Reform

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