Medicare and Medicaid Are Unsustainable Without Quick Action

As we celebrate Medicare and Medicaid’s 50th birthday, it is natural to look back at the changes that have occurred over the last 50 years as well as think about the changes yet to come. Medicare’s covered population has increased from 19 million to 55 million, including almost 10 million under-65 disabled. Benefits have also expanded considerably, including many preventive services as well as outpatient prescription drug coverage. Most beneficiaries continue in “traditional Medicare” although almost a third now choose Medicare Advantage, a private sector alternative, that covers at least some of the payments Medicare doesn’t cover, provides additional benefits and in principle, more coordination in the delivery of services.

As popular as Medicare remains with the seniors — not surprising given the greater dollar value of benefits received relative to the value of contributions made and the open access to clinicians and hospitals for most beneficiaries — the program is not sustainable in its current form.

Even with the current slowdown in spending that has been occurring in both Medicare and the rest of health care, the doubling of the population on Medicare resulting from the aging baby-boomers as well as any increase from the historically low spending per capita will require some combination of benefit cuts, eligibility changes, cost-sharing increases, tax increases and reductions in payments to providers.

If the significant reductions in payments built into the Affordable Care Act are not all carried out, as the Medicare actuaries have predicted will occur, these financial pressures will come even sooner. The longer policymakers delay putting in place changes that will make Medicare solvent, the more difficult and limited the choices will be.

Medicaid is more complicated. It began as a program primarily for people who were receiving welfare payments. The majority of people who are provided coverage are under 65 but the majority of spending is for people who are poor and aged in long term care and or disabled. With the A.C.A., Medicaid has now been expanded to cover all people below 138 percent of the poverty line (assuming state acquiescence). Federal matching rates for the population originally covered varies between 50 percent and 90 percent, depending on the state’s income. The expanded coverage currently has a 100 percent federal matching rate which will decline to 90 percent, which is also the match rate for the Children’s Health Insurance Program. Whether states will be able to absorb the 10 percent match is as yet unknown. At some point, these disparate match rates and the role of the federal government in long term care will need to be reassessed and Medicaid changed accordingly.

Both Medicare and Medicaid have enjoyed many successes these last 50 years but just as health care delivery is in the midst of significant change, we should expect both of these programs will continue to evolve and change.

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