The Cost of Medicare Will Double by 2040

by Veronique de Rugy

The findings in this week’s chart won’t come as a big surprise to anyone. The chart, which uses data from the 2011 Trustees Report and the Congressional Budget Office, shows the growth of Medicare costs over time.

Between 1975 and 2010, the number of Medicare enrollees doubled to 47 million, and the real cost per enrollee quintupled (in 2005 dollars). Based on these projections, by 2040 Medicare will cover 88 million people and the cost will be nearly two times higher than in 2010.

And things will be worse than they look on this chart. As Yuval Levin and I have explained previously, the Trustees Report makes many assumptions about cost-saving measures in the health-care law that are unlikely to actually be implemented.

So where is this increase in cost coming from?

The common explanation in the last few years is that the main driver of per capita health spending is excess cost growth. Both sides believe that it can be controlled, but they come at this issue from different perspectives. Democrats believe that panel of experts can stop that cost from rising, while Republicans believe that competition between private providers will do the trick. Economists like Arnold Kling, however, are much less optimistic and believe that “most of the rise in health care spending reflects increased use of expensive inputs, in particular fancy equipment and medical specialists.” If that’s the case, then health spending will continue to grow and no expert panel will be be able to put a stop to it.

Maybe more importantly, while rising health-care spending is a pressing issue, population aging is at least as big a problem, if not more. The CBO’s long-term budget outlook of June 2010, for instance, has a good chart on page 11 that shows the effect of aging on health-care spending. Here is a chart by AEI’s Andrew Biggs making that same point.

 

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