The current and future financial status of the Medicare has largely been subject to the health reforms that have taken place in the recent past. Some of these reforms increase the Medicare spending while others decrease the expenditure, geared at increasing benefits either in coverage or to facilitate the efficient operations of the program respectively. Others improve the quality and delivery of care.
Considering benefits improvement, we have a hundred and five billion dollars budgeted for a period of ten years. From the year 2011, Medicare will be covering new annual wellness visits, which will have a personalized prevention plan. In this plan the expenditure will be five billion dollars. Primary care physicians and other providers will spend additional eight billion dollars. What one can conclude from this argument is that Medicare is experiencing a lot of financial constraint. It, therefore, has been necessary to ease this mounting pressure (Barr, 2011).
The government and Medicare organizations have put dramatic efforts to increase Medicare savings; as a result the savings have increased to five hundred and thirty three billion dollars. This has been possible due to the reduction of expenditure by Medicare as propelled by the health reform law. The annual increase in payments that health providers ought to receive from Medicare has generated 219 billion dollars. Other reductions generated from provider payments also contributed to this savings portion.
An approximate of twenty five percent (136 billion dollars) of the total savings generated from reductions in payment made to medical advantage plans. An increase in the premiums payments for higher income beneficiaries of Medicare is yet another source contributing thirty six billion dollars. It is worth noting that the new board, tasked with reducing Medicare expenditure to levels below defined targets, contributes to sixteen percent whereas other delivery reforms contribute to twelve percent of the total savings.
In the current time, people have a choice of a traditional fee-for service Medicare, or one can enroll in a Medicare advantage plan (MA); for instance, HMOs and PPOs. Note that Medicare advantage plans normally receive a given fixed amount of money for every enrollee. Therefore, they get more than the amount traditional Medicare receives. This is a move by the congress, aimed at encouraging more Medicare advantage plan participation, as well as higher enrollment. Consequently, more plans have been developed with increasing enrollments (Brown, 1992).
In fact, the number of enrollees has increased by more than double from the initial size between the year 2004 and 2010. Medicare has thus been compelled to pay more for beneficiaries who enroll in Medicare advantage plans, than it does to those of traditional Medicare. From cost-benefit analysis it is evident that the Medicare program has higher expenditure to revenue thus shortening the life of Trust Fund and increasing payments made by other beneficiaries.
In ten years, the Medicare expenditure has to be reduced by one hundred and thirty six billion dollars due to three key provisions. Freezing benchmarks is one of them. If plans presented a bid to Medicare that is below the benchmark, they would be allowed to keep 75% of the difference in their offer and the Medicare maximum, also called the rebate. The health reform law freezes a maximum payment that Medicare will pay the Medicare advantage plans in 2011. The law freezes in decreasing proportions of payments based on the average Medicare cost in every county in the year 2012.
In addition, Medicare keeps a larger share of the difference between the plan’s bid and the county level benchmark. This reduces the amount that plans were previously able to keep, called the rebate. The law also includes a new system of bonus payments to plans, based on a new five star quality rating system. Their impact is not known yet, but it is highly likely that the following will happen: there will be fewer enrollees in the Medicare advantage plans, extra benefits for Medicare advantage plans, enrollees will be fewer with time, and finally, the number of plans will probably be fewer (Timothy, 2010).
CBO has initiatives estimated to reduce Medicare expenditure by twelve billion dollars in ten years. One of them is a reduction of payments for cases of hospitalization that are preventable. The other one is reduced payment on conditions that are hospital-acquired. Before the implementation of the law on health reforms, analysts of the Medicare part A Trust Fund projected that this trust fund was going to be exhausted by the year 2017. With the enforcement of the Health reform legislation, the Part A Trust Fund will last up to 2029. This is because of the Medicare savings provision, and the new Medicare payroll tax provision.
Because of the increase in health cost with time, we expect that Medicare will face tough challenges in the future. In fact, it is likely to double as the share of the gross domestic product (GDP). In proportion terms, it will increase from 3.5% in the year 2010 to 6.4% in the year 2030. The Congressional budget office shows that a rise in health cost has caused a growth in Medicare enrollment, and not due to the Baby Boom generation.
The major courses of increase in Medicare spending are: price inflation leading to prices increase, increased volumes of beneficiaries and the introduction of new technologies in the Medicare program. As the population ages, they tend to turn to the Medicare. Medicare, in this case, is taken as a primary source of health insurance. The public also considers Medicare as a pillar of retirement security (Barr 2011).
We expect the health reform law to reduce the Medicare spending significantly. By 2015, for example, we project the Medicare spending to be less by fifty billion dollars. Therefore, we anticipate improved financial status in future, holding other factors constant.