“The annual reports of the Board of Trustees and the accompanying Actuarial Opinions have cautioned for a number of years about the challenges of adhering to current-law Medicare payment updates, especially in the long range. For physician services, not only are updates below the rate of inflation in all future years, but there are more immediate concerns because updates for these services are projected to be -2.9 percent in 2023 and 0.0 percent for 2024 and 2025 and certain bonuses paid to physicians are scheduled to expire in 2025. Should payment rates prove to be inadequate for any service, beneficiaries’ access to and the quality of Medicare benefits would deteriorate over time, or future legislation would need to be enacted that would likely increase program costs beyond those projected under current law in this report.”

Source: The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, June 2, 2022.

“The Trustees use the factors model to determine the year-by-year growth rates for the overall health sector over the last 50 years of the projection. Based on the factors model, the Trustees assume that the long-range per capita overall health spending growth is GDP plus 0.7 percent (or 4.3 percent) for 2046, gradually declining to GDP plus 0.4 percent by 2096 (or 4.1 percent).⁶⁹ The per capita increase in overall health care costs is due to the combined effects of general inflation, medical-specific excess-price inflation (above general price growth), and changes in the utilization of services per person and the intensity or average complexity per service. The Trustees assume that beginning in 2046 (i) general price inflation will remain constant at 2.05 percent per year, as measured by the GDP deflator; (ii) excess medical price inflation will remain constant at 0.75 percent per year; and (iii) the annual increase in the volume and intensity of services per person will decline gradually from approximately 1.5 percent in 2046 to 1.3 percent in 2096 based on the key economic assumptions and elasticity estimates from the factors model, as described below.

“Excess medical price inflation for the overall health sector is assumed to grow at 0.75 percent annually from 2046 through 2096. This assumption is roughly equivalent to the difference between the growth in the personal health care deflator over the past three decades and the growth in the GDP deflator over this same period.⁷⁰ Combining this assumption with the ultimate assumed growth rate of 2.05 percent per year in the GDP deflator yields the Trustees’ estimate of the long-range rate of medical price growth of 2.8 percent annually. Using the relationship between medical price growth and resource-based health sector productivity growth⁷¹ allows for the determination of medical input price growth.⁷² For resource-based-health sector productivity, the Trustees assume that the rate of growth will be equivalent to published research⁷³ of 0.4 percent per year. Hence, the Trustees’ estimate of the long-range rate of growth of medical input prices is 3.2 percent.”

Source: The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, June 2, 2022.

“After combining the rates of growth from the four long-range assumptions, the weighted average cost growth rate for Part B is 3.8 percent in 2046, or GDP plus 0.2 percent, declining to 3.7 percent by 2096, or GDP plus 0 percent. When Parts A, B, and D are combined, the weighted average cost growth rate for Medicare is 3.8 percent, or GDP plus 0.2 percent in 2046, declining to 3.7 percent, or GDP plus 0 percent by 2096.

“In addition, these cost growth rates must be modified to account for demographic impacts, which reflect the changing distribution of the Medicare population by age, sex, and time-to-death.¹³ Those who are closer to death have higher health spending, regardless of age. The Trustees assume that as mortality rates for Medicare beneficiaries continue to improve in the future, a smaller portion of the population will be closer to death at a given age, which somewhat offsets the effect of individuals getting older and spending more on health care. This is particularly the case for Part A services—such as inpatient hospital, skilled nursing, and home health services—for which the distribution of spending is more concentrated in the period right before death. For Part B services and Part D, the incorporation of the time-to-death adjustment has a smaller effect.”

Source: The Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, June 2, 2022.

Health Systems Facts is a project of the Real Reporting Foundation. We provide reliable statistics and other data from authoritative sources regarding health systems in the US and sixteen other nations.

Page last updated Jan. 27, 2023 by Doug McVay, Editor.