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Medicare Solvency: Financial Analysis

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Medicare Solvency
The Medicare Program is one of the largest social programs funded by the government to paid health care services for the elderly, disabled and individuals qualifying to receive Social Security benefits. It is financed by payroll taxes, premiums, and surtaxes from beneficiaries and it is currently divided into four parts A, B, C, and D. Part A is the Hospital Insurance (HI); Part B is the Supplementary Medical Insurance (SMI); Part C is the Medicare Advantage (MA) which is a combination of parts A and B, and Part D is the Prescription Drug Coverage (Shi and Singh, 2015).
There are three main factors that are affecting the Medicare solvency: the cost of health care services is growing faster than the general economy’s inflation …show more content…

The slow wages growth and increased unemployment in 2010 were the causes of lower payments on payroll taxes resulting in a projected insolvency of 5 years earlier, 2024. Nevertheless, with the Medicare payment reduction and revenue increases included in ACA, as well as system reforms to improve efficiency and quality in patient care to reduce costs, we can expect a slower growth rate compared to historical trends, but regardless of the efforts, HI Trust Fund faces a medium long term deficit due to the upcoming increase of individuals older than 65 years old covered by Medicare and the decreasing relationship between employee’s tax contributions and health care expenditures. What is going to happen with the Trust Funds? Are we going to be covered by Medicare when we reach 65 years …show more content…

Medicare is facing challenges that need to be addressed for the future well-being of the Trust Funds, specially HI funds. There are several factors that can modify Medicare expenditures and therefore affect the projections. For example, the increase in the life expectancy, the aging of the population because of the Baby Boomers retire, a variation of unemployment rates, birth rates, death rates, labor force participation rates, wage increases, among other economic factors. What is going to happen after 2029? How are we going to pay health care services after retirement?
There are no provisions in the Social Secure Act that govern what would happen if insolvency were to occur (Davis, 2017). Hence, it is urgent to find a pathway for cost reduction.
The proposed Path to Prosperity initiative, form Chairman Ryan, includes major modifications to the fundamental basis of the program where Medicare would suffer a transition from defined benefit to a defined contribution (Petasnick, 2011). Is this going to be a solution or a problem?

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