A Medicare Surprise

During 1965, President Lyndon Johnson called Wilbur Mills, chairman of the House Ways and Means Committee, and said, “Wilbur, I’ve just been looking through the polls here, and I’ve only got a few weaknesses, and the worst of them is that I’m not doing anything for the old folks. I need some help from you.”

The result? Congress initially passed Medicare Parts A and B and then, Parts C and D. The goal was to fund hospital and home healthcare primarily for the aged who receive Social Security and also for the disabled.

The result also was much more spending than they expected. Medicare’s creators projected spending $9 billion on Part A in 1990 and, 25 years later, wound up with a $67 billion outlay. However, the fiscal story is much more accurate when we look at the percent of payroll figures that were 164 percent bigger than projected.

Today, the Medicare fiscal story continues. And again, we have some surprises.

Medicare Spending Surprises

In 2023, the Medicare Trustees repeated that Medicare faces significant financing issues. Although they cited an uncertain future, still they predicted the back-up hospital trust fund would be depleted in 2031. However, in 2019, they thought that the same fund would be gone in 2026.

The big surprise though is this year’s rosier report. Trying to explain why spending per beneficiary has been leveling off, they hypothesized the reason was the Affordable Care Act. They also cite the reduced Medicare payments that Congress mandated in 2011 and more cost-conscious healthcare providers. As for our health, even without pricey new drugs, there have been relatively fewer heart attacks and strokes. And, some even suggest that Covid deaths might have eliminated future health spending.

No one is sure of why Medicare spending has leveled. But the $3.9 trillion gap is a welcome surprise:

Our Bottom Line: Federal Spending

To see the impact of Medicare’s recent spending surprise, we can return to the federal budget and think of blueberries and watermelons. The blueberries, like foreign affairs, education, agriculture, and justice are tiny. Much larger, the watermelons are Social Security, Medicare, Medicaid (Health), Income Security, and Defense.

All of the “watermelons,” except for defense, are mandatory:

Or, we can just use this handy Washington Post graphic that shows the relative size of Medicare’s 2022 $905.1 billion spending:

But even if the leveling continues, Medicare’s mandatory spending will remain massive.

My sources and more: Today’s post was inspired by the NY Times Upshot and Medicare history in my own Econ 101 1/2. Meanwhile, if you want to a look, past trustees reports are here and here.