Medicare: Financial Disaster or Value-Based Opportunity?

Medicare Solutions - Healthcare consultants

Medicare is in serious trouble.

Mike Leavitt recently warned stakeholders in a whitepaper that Medicare Part A will run out of money in 2026, and there is no backup plan. We’ve heard the same from other experts, as well. Time is running out, according to Leavitt. And he certainly knows his stuff. He led HHS under George W. Bush and served as a Medicare trustee through 2009.

[Related read on Medicare predictions]

The warning is urgent. This country vowed to care for its seniors, but the promise will go unfulfilled when the program becomes insolvent. Tough decisions can’t be kicked down the road, only to fall at the doorstep of whichever party is in power. The time to act is now.

Driving factors

Across the healthcare landscape, costs are rising faster than costs in the economy as a whole. At the same time, the population is aging, resulting in more medical expenses. Soon 20% of America will be age 65 or older – and drawing on a Medicare program that is drifting toward disaster.

Making matters worse, the financing mechanism is upside down. Leavitt notes demographic shifts mean that there are fewer younger, working people contributing to Medicare’s trust fund. In 1966, there were more than four workers per Medicare beneficiary. By 2028, the number will drop to about two. It’s an intergenerational economic struggle between seniors and working families, he says.

Higher costs, more expenses, less funding, and economic tension. That’s hardly a smart health market.

[Related read on smart health markets]

Bipartisan fixes

While Leavitt laments the current trajectory, he also offers market-based solutions.

During times of crisis, when the planets align in a rare “partisan eclipse,” both parties are motivated to work together toward a mutual goal, Leavitt says. The Medicare crisis is such an opportunity. Solve the issue today, and both parties are protected from taking the blame for the inevitable fallout in the future, regardless of who controls Congress and the White House at the time.

That’s a pretty good motivation to get started.

Under the construct of the partisan eclipse, Medicare solutions would include:

  • A value-based foundation;
  • An organized marketplace with competition and transparency just like Medicare Part D; and
  • Each generation doing its part.

What’s good about Leavitt’s list is the fact that many of these ideas are already emerging in practice. For example, Medicare’s Shared Savings Program saved $1.1 billion in 2017, thanks to aligned incentives that now have providers working toward improved health rather than high-volume sick care (Health Affairs, September 11, 2018).

Now look at Part D. For 2019, the average beneficiary had a choice of 27 stand-alone prescription drug plans, as well as 21 Medicare Advantage plans with drug coverage (Kaiser Family Foundation, October 16, 2018). That’s some real choice.

But wait, there’s more! Part D choices are actually increasing thanks to consumer purchasing power. Awesome.

Of course, sustainable funding will remain the tricky part. If we are to re-balance the financial resources for Medicare, the changes must happen gradually and equitably. By reducing costs for everyone, no one generation will bear a disproportionate burden. But how?

Tech-enabled healthcare delivery has already emerged as a massive driver of future cost savings. Practical innovations, such as telehealth and artificial intelligence, are creating efficiencies while supporting high quality care. And the Millennial generation has its hands securely around the tools and devices that will no doubt transform Medicare into an affordable benefit for years to come.