The fiscal future of Medicare is an unavoidable challenge for the US federal government. The Medicare trustees’ annual report to Congress in April 2020 projected that the Medicare Hospital Insurance Trust Fund will become insolvent in 2026, when revenues will cover only 90% of expected Part A expenditures.1 Financed primarily through Medicare payroll taxes on working adults (nearly 90% of revenue) and income taxes on Social Security benefits of retired adults (approximately 8% of revenue), this trust fund covers Part A benefits for Medicare beneficiaries receiving hospital, skilled nursing, home health, and hospice care.
According to the Congressional Budget Office, the coronavirus disease 2019 (COVID-19) pandemic has substantially worsened the financial outlook of the Medicare Hospital Insurance Trust Fund. Reduced revenue from Medicare payroll taxes during the current economic recession will accelerate the insolvency of Medicare Part A from 2026 to 2024.2 To prevent the Medicare Hospital Insurance Trust Fund from becoming insolvent, Congress will need to enact a legislative solution to address this trust fund deficit. The solution could include increased payroll taxes, increased beneficiary cost sharing, or reductions in Medicare payments to hospitals and other health care organizations that provide Part A services.3
In contrast to Part A funding, Part B benefits for physician and hospital outpatient services and Part D benefits for prescription drugs are covered by the Medicare Supplementary Medicare Insurance Trust Fund, which is financed through general tax revenues (approximately 75% of revenue) and premiums paid by Medicare beneficiaries (approximately 25% of revenue). The Medicare trustees expect this trust fund will remain solvent for the next decade, but it will require a growing share of personal and corporate federal income taxes—rising from 15.8% in 2020 to 22.1% in 2030—to maintain its solvency.1
While Congress and the president seek agreement on how to extend the solvency of the Medicare Hospital Insurance Trust Fund, it is incumbent on physicians and health care organizations to find new ways to improve the health of Medicare beneficiaries while controlling the growth of their health care spending. In this context, a study by Lauffenburger et al4 in JAMA Network Open provides key insights on patterns of health care spending among beneficiaries in traditional fee-for-service Medicare.
Lauffenburger et al4 analyzed Medicare Part A, Part B, and Part D claims data in 2011 to predict trajectories of health care spending during 2012 and 2013 among nearly 330 000 beneficiaries aged 65 years and older. With measures of demographic characteristics, comorbid conditions, and baseline health care use, such as the numbers of physicians, office visits, and medications recorded for each beneficiary, the authors used machine learning statistical methods to define 5 groups of beneficiaries with distinctive spending trajectories.4
The largest group, which included 41% of beneficiaries, had high annual spending (nearly $20 000) in the baseline year of 2011, which increased to more than $24 000 in 2013. Relative to the other 4 groups, the high-cost group was far more likely to have a wide range of comorbid conditions, including hypertension, diabetes, coronary artery disease, chronic lung disease, depression, osteoporosis, and tobacco use. Unsurprisingly, this group had a higher mean number of office visits (11.3) and unique prescription drugs (8.0) than the other 4 cost groups. With the greatest health care needs, the high-cost group presents the most substantial opportunities to contain health care spending through better coordinated primary and specialty care, home care services, and medication management in the ambulatory setting.5,6 Such efforts could reduce the risk of costly complications that lead to avoidable hospitalizations.
With 25% of beneficiaries, the second largest group had annual costs that remained stable (between $8000 and $9000) from 2011 to 2013. In this moderate-cost group, the prevalence of comorbid conditions was generally between the high-cost group and 3 groups with lower baseline costs. With steady costs during the 3-year study period, these beneficiaries were likely benefitting from good quality ambulatory care that was reasonably well coordinated, so they infrequently required expensive hospitalizations. They may also have had greater social support from spouses, family members, or friends who helped them maintain their overall health and stable health care spending during the study period.
The remaining 3 groups comprised approximately one-third of all beneficiaries, including a minimal-user group (11% of beneficiaries), a low-cost group (15%), and a rising-cost group (7.5%). The minimal-user and low-cost groups had annual spending of less than $2000 and less than $5000, respectively, during the baseline year of 2011, and their spending levels remained stable through 2013. However, for the rising-cost group, baseline annual spending of less than $5000 in 2011 increased approximately 3-fold during the ensuing 2 years to approximately twice the spending of the moderate-cost group. Although not directly addressed in the study by Lauffenburger et al,4 rising costs in this group may have arisen from new diagnoses or complications from cancer, cardiovascular disease, and other costly conditions that required expensive hospitalizations, imaging, or surgical procedures.
Medicare is a broadly popular social insurance program that covers more than 60 million older adults and adults with disabilities in the United States. Congress and the president will be responsible for addressing the looming fiscal crisis for the Medicare Hospital Insurance Trust Fund in the next 4 years. Guided by the study of Lauffenburger et al4 and consistent findings from other comparable research on Medicare spending patterns in the last year of life,7 physicians and health care organizations must find ways to provide care more effectively and efficiently for the half of Medicare beneficiaries with high or rising costs so that Medicare remains financially viable for generations to come.
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Ayanian JZ. Saving Medicare for Baby Boomers and Beyond—A Looming Fiscal Crisis. JAMA Health Forum. 2020;1(11):e201387. doi:10.1001/jamahealthforum.2020.1387