Why are American Medicare Expenses Rising Rapidly?

The United States has been facing a Medicare crisis of sorts. According to the latest figures, close to 4% of the American GDP was spent on Medicare in 2018. The statistics are alarming because they depict a 600% increase in the Medicare expenses since the 1960s. This steep rise in expenses poses a big problem for the American economy. This is because the American government will have to reduce its expenses or raise taxes. Both of these alternatives are highly unpopular. The third alternative commonly used is to raise debt. That is also not viable given the enormous debt that the American government is already in.

There are many reasons for this steep and sudden rise in Medicare expenses. Some of these reasons have been listed below in this article.

Growth in Number of People Receiving Medicare: The number of people reaching the age of 65 in the United States is increasing every year. Instead of staying steady, the number of beneficiaries has increased by an average of 1.5% for the past 40 years. That is an increase of almost 60 percentage points even if the compounding is not taken into effect. Simply put, the American expenses on Medicare are predictably going up since the population is also increasing at a slow and steady pace.

Increase in Average Age Expectancy: During the 1960s, people receiving Medicare benefits were expected to do so for an average of 15 years per person. However, due to rapid advances in medical science, the life expectancy has also increased. As a result, the average time period to receive the benefits has shot up to 20 years per person. Since more number of people are receiving the benefits for a longer duration, it should come as no surprise that the total expenditure has increased drastically. Also, it must be taken into account that as the age of recipients increase, they require more care. Hence, they drag the average expenses higher as well.

Disability Benefits: The number of people receiving disability benefits from the United States government has more than tripled since disability coverage was introduced in the 1970s. This is despite the fact that more safety measures are now in place, and fewer people are now victims of workplace accidents and injuries. This is because of the fact that disability criteria has been made very accommodating. In fact, if the increase in the expenses of Medicare recipients is charted, disability benefits are the single largest increase in expenses. A lot of economic analysts believe that these benefits have been given for purely political reasons.

Increased Coverage: American Medicare now has a much greater scope than it previously did. For instance, it covers the expenses of younger patients if they have end-stage renal disease and are undergoing dialysis. This was not part of the Medicare program earlier. Similarly, the Medicare system now provides sixty days of inpatient service for people who have undergone a liver transplant. Unlimited home services are also provided to people suffering from grave diseases.

Also, the American Medicare system now provides drug benefits. Hence, along with paying for the procedures, the government also has to pay for the drugs that the patients now consume. Some of these drugs are very expensive, and covering them has been one of the biggest reason for the steep increase in Medicare expenses.

The above points make it clear that Medicare expenses are not only rising because of the inflation in medical expenses. Although medical inflation in America is going through the roof, it is not the only culprit. The reality is that over the years, the scope of Medicare has been gradually increased by nature, medical sciences, and the government. The result of all this is the unsettling bill that the government has to pay for these services each year.

Now, the question arises about how can some of these expenses be reduced? The trick is to change the situation gradually so that the impact to the recipients is the least. Some of these measures have been listed below.

  • The United States government is considering slowly raising the eligibility age for Medicare benefits. They want to first increase the age to 67. Then wait for a few years, raise it to 68 and so on till the age reaches 70. Doing so would save the government a lot of money. However, this needs to be done gradually. Otherwise, many existing recipients of Medicare will also be impacted.
  • The criteria for disability benefits also need to be strengthened. For instance, at the present moment, the American system gives more weight to the opinions of doctors hired by the patient than to their own doctors! Also, there are absurd provisions in the law which allow people to combine two or more disabilities and claim money from the government even though these disabilities do not prevent them from actually working! Many American citizens quit working since they are afraid that they will lose their disability benefits if they do. This is a strange situation which needs to be rectified immediately.

The bottom line is that the Medicare plan in the United States is bloated and wasteful. Meaningful cost reductions need to be done so that the actual beneficiaries are left unharmed, but the excesses are stopped, and expenses are once again brought under control.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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