Is the cost of Medicare increasing?

Health care is expensive in America and the Medicare program pays much of that cost. 

In 2020, Medicare will pay an estimated $864 billion for doctor visits, hospital care, medicine and more. That’s $116 billion more than just two years earlier!

It is true that Medicare spending is growing fast, with some arguing the growth is unsustainable. But many are surprised to learn the inflation-adjusted annual cost per enrollee has remained fairly stable over the last 10 years, increasing only $209.

Hospital use is bending the Medicare cost curve

Per-enrollee Medicare growth has slowed primarily because of age, hospital care and policy changes.

Since 2007, the average Medicare beneficiary age has fallen from 76 to 75. Because care consumption increases with each year of life, and the increase quickens after age 65, a one year change is more significant than you might think.

Partly because of those demographics, hospital stays are becoming less frequent and the average duration per stay is going down. Between 1992 and 2017, hospital stays per 1,000 enrollees have decreased from 306 to 245.
These modest trend differences add up when Medicare spends more than $180 billion per year on hospital care.

Finally, policy changes have incentivized caregivers to prevent someone leaving the hospital before it’s appropriate for them to leave. These “30 day re-admissions” are expensive – $2 billion per year – and too many of them suggest doctors are ineffectively managing a patient’s condition.

Influential policy advisors remained worried about Medicare costs 

Overall Medicare spending is still increasing – and rising quickly.

Although Part A hospital costs are going down and Part D drug costs are contained, Part B hospital care combined with more new Medicare enrollees have caused the total costs to increase faster than inflation.

In 2020, the Medicare Payment Advisory Commission (MedPAC) warned Congress that the Medicare spending is growing at an unsustainable pace. 

The commission's executive director called for urgent changes to not only how Medicare pays health care providers but also that care is organized and delivered - an approach known as Accountable Care or Value-Based Care.