Nine years from now, one in every 5 dollars will go to health care for older Americans. This forecast is presented in detailed context in a new report published by the Kaiser Family Foundation.

Financing Medicare: An Issue Brief reminds us that Medicare is among the fastest-growing Federal programs in the U.S. By 2016, Medicare spending will exceed that of the forecasted cost of Social Security in 2028. These findings are based on the budget estimates presented by the Congressional Budget Office in August 2007.

Simply said, it is escalating health care costs that cause Medicare to consume increasing chunks of the GDP — reaching 20% of GDP in 2016.

What the Kaiser briefing says are “shifting demographics” will exacerbate medical spending. Medicare will need to care for more beneficiaries by 2016, and there will be fewer workers per beneficiary to contribute to Medicare funding. This is a funding problem already being experienced in Japan and many European economies.

What’s fueling Medicare health care costs? Demographics (aging and declining workforce participation rates), Part D (prescription drug coverage), physician payments, adminsitrative costs are cited by the report as key cost drivers.

But it should be noted that Medicare finances one-third of all hospital admissions, according to data from the Agency for Healthcare Research and Quality (AHRQ).

Health Populi’s Hot Points: 2008 will be a tough year on physician reimbursements from Medicare. At the same time, hospital costs are increasing and Medicare needs to link payments with quality — such as never paying for “never events” (i.e., deaths and serious injuries caused in hospital). Medicare will phase in this payment approach this year. So will Blue Cross plans and several states including Massachusetts, Minnesota and Vermont at the time of writing this blog. The Leapfrog Group and many business coalitions also endorse this payment concept. This is but one tactic of many that must be implemented to begin to align payment with quality — a crucial paradigm for managing ever-escalating costs to the Medicare program, and for health care in the population-at-large. But Medicare is the plan-of-all-plans that others look to for shifting paradigms. The buck stops there.

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