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Medicare Advantage is Taking Over the World

by Christopher Chantrill
July 28, 2015 at 12:00 am


EVERYONE KNOWS that Medicare is going to eat the budget. But last week the Medicare Trustees issued their annual Medicare Trustees Report and they said that costs are increasing slower than expected. They have a point. Medicare has been chugging along at 3 percent of GDP ever since 2010.

After plugging the numbers from the Trustee Report into usgovernmentspending.com, for my money the big takeaway is that Medicare Advantage, or Part C, is now on course to become the biggest part of Medicare. Look at the rapidly growing green sector in the chart.

Who knew? It is really hard to get the numbers on Medicare Advantage, or Medicare Part C.

Regular Medicare is like every government health care program. It has a bunch of free stuff up front—like free recliners and walkers for little old ladies—followed by a gap where you have to pay up, followed by more benefits. That gap is why AARP is the leading marketer of “Medigap” insurance that fills the gap. The Bush era Medicare drug plan, Medicare Part D, also follows this tradition, only its benefits gap is not called a gap but “the donut hole” instead.

Some bright people thought that it might be a good idea to provide an alternative to seniors and provide a Medicare option that looked more like regular private sector health insurance, with premiums and deductibles, and so, after a couple of false starts, Medicare Part C, also called Medicare Advantage, was passed in 2003 as part of the Medicare Modernization Act.

But there’s a problem. If you look at the historical tables in the federal budget, you will find just one single line item for Medicare. It is Subfunction 571, and in FY 2014 it amounted to $512 billion. Here is usgovernmentspending.com’s chart of Medicare in percent of GDP as one big blob.

Only that’s not the real cost of Medicare outlays. That’s just the cost of “net” Medicare. “Net” Medicare does not tell us the gross cost of Medicare spending, it just tells us the cost after deducting premiums and contributions paid by Medicare recipients. You would think that all such federal revenues would be counted on the revenue side of the budget but you would be wrong. Premiums and deductibles for Medicare Part B are counted as “negative spending” and make the outlay on Medicare look smaller that it really is. “Gross” Medicare for FY 2014 was $609 billion, as calculated by usgovernmentspending.com.

About two years ago the crack team of analysts at usgovernmentspending.com decided that one single number for Medicare wasn’t good enough for us, so we dug into the federal budget’s Public Budget Database and extracted line items for Part A Hospital Insurance, Part B Supplementary Medical Insurance, and Part D SMI Drug. In May 2013 we published our results to the world. You may note that this publishing event happened about four months after Hillary Clinton asked: “What difference — at this point, what difference does it make?” At that point, this is the difference it made.

Notice the problem? There is nothing about Medicare Part C, or Medicare Advantage.

Unfortunately, the Public Budget Database does not break out Medicare Advantage spending. You’d think it would, given that the database includes over 4,000 line items of federal spending, but it doesn’t. Medicare Part C is hidden away like a private mail server in Part A and Part B.

So our crack team of analysts dispersed for the summer of 2013 in deep despair.

Nevertheless, on March 15, 2014, usgovernmentspending.com announced “Medicare Part C Added.” We had found in the interim that the Medicare Part C numbers were hidden in plain sight in the Medicare Trustees Report in the cunningly innocuous “Table IV.C2—Medicare Payments to Private Health Plans, by Trust Fun” [sic]. How did we figure this out? At this point, what difference does it make? We found the numbers and we published them, Senator. You can take a look at Table IV.C2 over the years here.

This year the future outlays for Medicare Part C in Table IV-C2 are up from last year. Indeed, by 2020 Medicare Part A and Medicare Part C will be exactly equal at $222 billion.

Now look at Gross Medicare, and see what the real spending looks like, without the distorting effect of “negative spending.” It adds a mild 0.5 percent of GDP—or $100 billion—on top of the Net Medicare total.

Still, Gross Medicare spending has been flat for the last decade at about 3.5 percent of GDP.

But don’t get your hopes up. The Medicare Trustees and their crack team of analysts and actuaries estimate that Net Medicare will increase to 5.6 percent of GDP by the middle of the century.

But by then I will be dead.

Christopher Chantrill blogs at www.roadtothemiddleclass.com.

Buy his Road to the Middle Class.

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presented by Christopher Chantrill

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