The document discusses Medicare spending and proposals for reforming the program. It shows that while Medicare spending growth has slowed in recent years, it still grows significantly faster than GDP. If trends continue, Medicare and other health spending will account for over 17% of GDP by 2037. The document proposes several reforms to make Medicare more sustainable, such as combining Parts A and B, limiting first dollar Medigap coverage, introducing competitive bidding similar to Part D, permanently fixing physician payments, and gradually raising the eligibility age in line with increasing longevity.

1. State of the Union: Medicare
AEI on the Hill
January 29, 2013
Joseph R. Antos, Ph.D.
Wilson H. Taylor Scholar in Health Care
and Retirement Policy
American Enterprise Institute

2. Slower Per Capita Medicare Spending in Last 3 Years
6.0%
5.3%
5.0%
4.3% 3.6%
4.0%
2.9% 3.2%
3.0%
1.8%
2.0%
0.9% Medicare
1.0%
GDP
0.0%
-1.0% 2008 2009 2010 2011
-2.0%
-3.0%
-4.0% -3.1%
Comparable growth rates for total spending and GDP:
8.0% 1.9% 6.9% -2.2% 4.3% 3.8% 6.2% 4.0%
Total Medicare spending continues to grow
significantly faster than the economy—
Is GDP + ½% feasible?
AEI
2

3. 3

4. Federal spending as a percentage of GDP, Alternative Fiscal Scenario*
18 17.2
16
14
Assumes aging accounts for 52% of
12 growth in health spending and 68% 11.6
in health and Social Security
10 9.6 9.5
7.7
8
6.7
6.2
6 5.0
3.7 3.7
4
1.7 1.4
2
0
Social Security Medicare Medicaid, CHIP, ExchangeOther Spending Interest Deficit
2012 2037
*Assumes Medicare physician fees held at 2012 level, IPAB does not take
effect, current law reductions in per-person exchange subsidies not
AEI enforced, other automatic spending reductions not enforced.
4

5.  Better choices for seniors
 Better incentives for providers
 More effective competition among
health plans
 Greater security for
beneficiaries, today and tomorrow
AEI
5

6.  Simplify and improve Medicare’s benefit
◦ Combine Part A + Part B; single deductible; catastrophic
limit
 Reform Medigap
◦ Limit first dollar coverage
 Promote fair competition
◦ Similar to Part D: Plan bids determine risk-adjusted
payment, better information for seniors to choose
traditional Medicare or private plan
 Reform payment policies
◦ Permanently resolve physician payment
 Align eligibility age with longevity
AEI
6