NCPA - National Center for Policy Analysis

Reducing the Growth of Medicare

December 15, 2003

It is expected that spending on Medicare, Medicaid and Social Security will grow from 8.4 percent of the Gross Domestic Product (GDP) in 2003 to 15.7 percent in 2040. By 2075 all three are expected to consume 21.3 percent of GDP, equivalent to the entire federal budget today, according to a Health Affairs report. These estimates do not include the recently created Medicare drug benefit.

To limit Medicare's future size by reducing the rate of growth in health care spending, the authors propose two strategies: reduce Medicare expenditures in high-spending regions and/or reduce Medicare expenditures on high-spending individuals. The authors find the latter strategy to be more economically advantageous because:

  • Twenty percent of beneficiaries living in the highest-intensity regions account for only 24 percent of Medicare spending.
  • However, 20 percent of the highest-spending individuals account for 84 percent of Medicare spending.

Those individuals who are highest-spending should be identified through simple strategies, such as flagging beneficiaries upon admission to a hospital. Once identified, case management should be tailored to the individual and administered by a team of providers with someone responsible for care coordination.

Not only will these steps benefit the elderly by reducing the number of hospitalizations and increasing the level of coordinated care, it will also directly benefit the taxpayer, say the authors.

Source: Steven M. Lieberman et al., "Reducing the Growth of Medicare Spending: Geographic versus Patient-Based Strategies," Health Affairs Web Exclusive, December 10, 2003.

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