Medicare Spending was Down

Who Should Get the Benefits?

According to a study done at the Center for Demographic Studies at Duke University the chances that elderly Americans will be devastated by chronic disabilities have declined sharply in the last few years. Dr. Kenneth G. Manton headed the research team that issued the report.

The researchers looked at the records of 19,000 elderly Medicare beneficiaries each year since 1982. As some of those in the initial group died off others replaced them so that a total of 43,000 people have been studied since the initial undertaking. Until 1994, the numbers who were struck by a chronic disability was declining by 1.6% each year. For the most recent 5-year period of the study the decline steepened to 2.6% from 1994 to 1999. The rate of decline steepened even faster for black Americans, with the decline reaching 5% from 1994 to 1999. The numbers of blacks with chronic disabilities however were at a much higher ratio than whites.

According to Dr. Manton "the demand for Medicare service would be fairly static" even though there is a surge in the number of baby boomers who will be eligible for Medicare shortly. "The new study emphasizes the importance of focusing on improving the health of the elderly rather than enacting destructive cuts in the Medicare program," said Senator Edward M. Kennedy (Dem-Mass). "Healthier senior citizens need less medical services and that's food for Medicare" he added.

In 1982, 7.1 million, or about 26%, of the 26.9 million elderly were disabled as measured by being unable to perform such daily activities as eating, bathing and getting dressed. By 1999, the total had dropped to 7 million, or 19.7%, despite the overall growth to 35.3 million of the population over 65.

The U.S. Treasury Department reported that for the fiscal year ended September 30,1999 Medicare spending was $2 billion less than the $213.6 billion spent for the similar period in 1998. This was the first time in the 34-year history of Medicare spending that there was a yearly decrease, The question that now comes to the forefront is whether these savings should go for additional benefits for the beneficiaries, or to help the hard pressed health care providers.

In our 3 prior articles on adding prescription drug costs to Medicare benefits we discussed this particular issue so we refer you to these articles to learn more about this issue:

For fiscal year 1998 Medicare spending increased only 1.5%. Thus there has been a perceptible decrease in Medicare spending in the last 2 years. Our article on Social Security and Medicare Solvency showed how wrong predictions have been in the last 2 years in estimating how soon it will be before Medicare and Social Security go bankrupt. It is obvious at this point that the Balanced Budget Act of 1997 has slowed the growth of Medicare spending tremendously. The Congressional Budget Office has recently lowered its estimation of Medicare spending for the 5-year period from 1998 to 2002 by almost 100 billion dollars.

Each and every aspect of Medicare spending is now estimated to drop in the next few years. In addition to the drop in spending the Balanced Budget Act of 1997 cracked down hard on Medicare fraud and abuse. Overcharging for services has been dealt with severely. Medicare contractors are much more careful in reviewing and paying claims. In addition to this the BBA of 1997 calls for cuts of about $1.6 billion annually in payments to hospitals nationwide set to go into effect in October 2002. The bulk of these cuts will affect many of the nation's leading teaching hospitals. Lobbying efforts are underway right now to prevent these cutbacks from further negatively impacting Medicare. The 1997 BBA called for reducing projected spending on Medicare by $115 billion by 2003. Many experts in the field allege that the cutbacks have already reduced spending on Medicare by $200 billion. Thus with increased costs and labor demands for increased wages the hospitals are faced with financial crisis. Teaching hospitals are expected to lose $735 million annually in funding.

Under the provisions of the BBA of 1997 cost-cutting measures imposed a cap on a payment that hospitals received to help them keep up with inflation. This change will go into affect on October 1, 2001 and will cost the hospitals about $933 million by 2005. Because of the severity of these cuts an alliance is being formed between labor leaders in the health field and Congressmen from both parties, who will try to head off these cuts.

The HMO industry asserts that it has been unfairly impacted by the cutbacks in Medicare reimbursements. On Wall Street the stocks of the HMO companies have showed a large drop-off in earnings and in many cases severe loses. For years, the government paid HMOs 95% of the amount it spent in a particular region to provide fee-for-service Medicare, but the Balanced Budget Act cut back on this percentage. The industry claims that the government spends much less per person for HMO coverage than for traditional Medicare coverage. The industry is undertaking a large publicity campaign on this issue. Congress did allow an additional $10 billion in funding for the HMOs starting in the year 2000.

An article in the May 6, 1999 issue of the New York Times covered how the large teaching hospitals are being negatively impacted by the cuts in Medicare spending. The hospitals claim that with the combination of rising costs and lowering of Medicare payments they are caught in a huge vise. In addition to training new physicians these hospitals are in the forefront of working on the latest of medical technology. As this vise closes in on them the hospitals assert that they will be forced to cut back in many areas. There will be massive closures of unprofitable departments in these hospitals that are in the forefront of discovering the latest advances in medical science. Clinical research will suffer greatly. The mergers that have taken place amongst our hospitals have to some degree been caused by Medicare cutbacks. The corporate world has learned however to deal with cutbacks and to become more efficient as a result thereof. We do not take sides in this issue because we do not know all the facts. We do believe however that independent auditors should be allowed to look at their books so that we can make a better judgment on this issue.

In our article on Selecting a Nursing Home we pointed out how some nursing homes were cutting back on their long-term care operations so that they could increase the amount of space available for sub-acute patient care. This is being done because of the greater amount of payments to the facility for the latter type of treatment than what the institution could earn from long term care residents. In the past when Congress cut Medicare payments for one type of service, health care providers could respond by providing another kind of service. This has become much more difficult because all types of services are being cut back. Some federal officials have asserted that some nursing homes may have to close their doors because of their worsening fiscal condition. According to the Duke researchers the number or nursing home residents declined by 200,000 over the past decade.

The CBO has warned that Medicare spending will exceed the $400 billion level by 2008. At that time the number of Medicare beneficiaries is expected to grow from its present 39 million number to over 44 million beneficiaries by 2008.


Allan Rubin
updated May 14, 2001

e-mail: or

Return to Home