Managed Care

Medicare Modernization Act to increase public sector spending nearly 50 percent

The public sector will account for a record 49 percent of the nation’s health care spending by 2014, according to economists and actuaries at the Centers for Medicare & Medicaid Services. While Medicare Part D, to be introduced in 2006, will have little effect on overall health spending or spending on prescription drugs, it will result in a substantial shift in funding from Medicaid (cost shared by the federal government and the states) and the private sector to Medicare, according to actuaries at CMS.

"In 2004, the spending ratio for the public/private sector was ... about 45/55," says Stephen Heffler, director of the National Health Statistics Group in CMS’s Office of the Actuary, and one of the researchers in the study.

While the burden on the public sector to supply health care benefits to Medicare and Medicaid enrollees will increase, on the private side, a reevaluation of current forms of health insurance coverage may take place as growth in premiums continues to outpace growth in compensation, according to the researchers. This increase in spending could lead to heightened pressure to find ways to slow cost growth without compromising quality or access.

The researchers project a large shift in 2006 in payment responsibility for prescription drugs to Medicare from direct purchase by patients, from private health insurance, and from Medicaid. They forecast a minor rise in spending due to an increase in prescription drug use by Medicare beneficiaries that will largely be offset by lower prices. From 2007 to 2014, the researchers expect, aggregate prescription drug spending growth will decelerate despite the new Medicare drug spending. CMS projects that total prescription drug spending will grow 11.6 percent in 2006, of which 0.5 percent will be attributable to the implementation of Part D.

Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group

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