NCPA - National Center for Policy Analysis

The 50-Year Old Medicare Program is Showing Its Age

July 31, 2015

When President Johnson signed Medicare into law on July 30, 1965, nobody realized the program would grow to its current size.

  • Last year alone, Medicare spent $613 billion on nearly 54 million beneficiaries.
  • Seniors qualify for Medicare when they turn age 65. Back in 1965 when Medicare was created, many Americans died before reaching that age.
  • Only Americans born in 1900 and before would have been eligible Medicare benefits in 1965.  The life expectancy for men and women born in 1900 was under 50 years of age.
  • In 1970 -- five years after the program began -- annual per capita Medicare spending was only $385. Today it is $12,430; and it is projected to reach nearly $19,000 a decade from now.
  • In 2014 Medicare spending on drugs was .48 percent of GDP. This proportion will rise as specialty drugs supplant spending on cheap generics.

Devon Herrick, a senior fellow with the National Center for Policy Analysis continues on to discuss why the Medicare trustees report is not reassuring:

  • Medicare spending as a percentage of GDP has been rising sharply. It was 1.3 percent in 1980, 2.2 percent in 2000 and about 3.5 percent of GDP today.
  • The "good" news is that Medicare spending is projected to stabilize between five and six percent of GDP for a period of about 60 years — from 2029 until 2089.
  • This projection assumes conditions under "current law". For instance, current law assumes the Independent Payment Advisory Board will retain the power to arbitrarily cut Medicare spending if a growth rate threshold is surpassed.

In the coming decades the amount of general revenue necessary to fund Medicare will rise substantially.

Source: Devon Herrick, "The 50-year Old Medicare program is Showing its Age," Townhall, July 30, 2015.

 

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