Medicare may not be as stable and predictable as people think. In 2022, the Medicare Hospital Insurance trust fund will no longer pay promised benefits in full. In response, the government is considering options to help make up for the deficit, such as raising taxes or cutting benefits in some form. This blog post discusses if medicare costs will increase in 2022.
Rising Cost to Deliver Health Care to Medicare Enrollees
The Medicare trust fund does not cover people who are 65 or older. The rest of the population covers 70% of health care costs for people covered by Medicare. Therefore, to meet this greater demand, health care prices increased almost 60% between 2002 and 2012, according to a 2013 report from the Centers for Medicare and Medicaid Services.
As the population ages, more and more people will be covered by Medicare. About 10,000 baby boomers turn 65 every day between 2011 and 2030. The demand for health care services from the aging baby boomers will further increase the costs of Medicare.
Effect of Pandemic
As more people succumb to the flu and other quick spread of germs, there are more and more hospital visits. The rising cost for the health care services and medicines to treat these patients will further increase the cost of Medicare.
Lack of Control
Medicare is not the only factor affecting health care costs. The government has little control over the rising costs of drugs and medical services. By making changes to Medicare, the government may affect the costs of insurance premiums for other programs, like Tricare or group plans. This means that the government does not always have good control over health care costs and needs to be sure that these costs are lower than expected for the future budget.
Pharma Costs
The cost of medicines has risen over the last few years and will continue to do so. The rising costs of prescription drugs are, in part, due to the high cost of research and development, higher patent protection, and an increase in the number of patents issued. These factors have driven up the price of a relatively simple drug like Aspirin from $0.06 in 1990 to almost $3.00 today.
In comparison, the price of a new drug approved in 2012 was over $800,000. For example, Kenalog (Kenalog) is a vasodilating agent that helps patients with high blood pressure. Its price has increased due to multiple patents issued throughout the past decade. Even in 2012, the price for the Kenalog brand was around $0.63 per mL. This means that a 5 ML injection would cost roughly $3,410. The price difference between it and Aspirin is more than a thousand times. So the cost of Medicare will increase in 2022.
Labor Costs
Labor costs have risen as health care became less dominated by doctors and nurses and more by administrators, other professional positions, technicians, and therapists. This trend of specialty care is expected to continue. According to the Agency for Healthcare Research and Quality (AHRQ), the number of hospital-based physicians, such as surgeons, radiologists, and pathologists, will decline from its peak in 2008 to just over one million physicians in 2016. The number of nurse practitioners and physician assistants will also decline slightly. On the other hand, there will be more nursing administrators and managers.
Labor costs are increasing in hospitals, nursing homes, physicians’ offices, and other medical service providers. These increases will affect the Medicare cost in 2022.
New Technology
The cost of health care has become more sophisticated and expensive. New technologies are being developed to treat chronic illnesses. In fact, over the last few years, the federal government has invested close to $2 billion in technology development. However, these technologies are not always affordable for hospitals to provide. For example, Intraoperative MRI is one of these technologies that cost around $1.5 million per scanner compared to $631,000 for traditional MRI machines.
Another example is a device called “the da Vinci surgical system,” which costs around $3.6 million. The federal government invested $1 billion in research and development. However, only a few hospitals are using this system. One reason is the price. There are no US manufacturers of this device, and most parts must be imported. This results in higher transportation costs and import taxes for hospitals that want to purchase it. This will lead to the high cost of Medicare in 2022.
Actuaries’ Estimate
Actuaries are the technical experts who estimate programs’ financial costs. The estimate should be unbiased and accurate. Their estimate for the cost per person in Medicare is a good indication of what to expect or what an insurer or government program may need to pay out in the future. The cost estimate from the actuaries is that Medicare will cost $9,633 in 2022, more than double what it costs today.
Medicare Costs in 2022
Comparing the actuaries’ cost estimate to what is expected in 2022 is like comparing the price of a car today to the price of a pre-owned car in 2022. It’s important to consider what factors might have affected the cost in 2022, compared to what it will cost in 2022. These factors include inflation, interest rates, the unemployment rate, and population growth. The expected inflation rate is 2.78%, the interest rate is 3.32%, and the unemployment rate is 5.43%. The population growth from 2010 to 2025 is approximately 11%. Although it is unlikely that the price of a car would double in 2022 and that Medicare will cost $9,633 in 2022, it’s possible. The cost is almost certain to rise. This will cause a medicare cost increase from $6,587 today to $9,633 in 2022.
Conclusion
As more people succumb to the flu and other quick spread of germs, there are more and more hospital visits. The rising cost for the health care services and medicines to treat these patients will further increase the cost of Medicare.
