The Impact of Medicare on the Healthcare System

Medicare is one of the largest and best health insurance programs in the world, accounting for 20% of healthcare expenditures, 1/8 of the Federal Budget, and more than 3% of the Nation’s Gross Domestic Product (GDP). Its impact on healthcare, the economy, and American life generally has been significant.

  1. Financial Benefit to the Elderly:-

Experts have speculated that Medicare has decreased elder mortality, there is no empirical evidence to prove that claim. However, older Americans have benefited by the reduction of risk for large out-of-pocket medical expenditures. Research indicates that these costs have been reduced by about 40% for the elderly, who had previously spent the most. The value of peace of mind for elderly Americans is incalculable.

  1. The Introduction of Prospective Payment Systems:-

In 1980, Medicare health care system developed the diagnosis-related group (DRG), the bundling of multiple services typically required to treat a common diagnosis into a single pre-negotiated payment, which was quickly adopted. In 1992, the resource-based relative value scale (RBRVS) was introduced for physician payments. These payment systems have generally replaced the previous industry practice of paying a negotiated discount off billed charges or fees established by hospitals and physicians that are rarely related to actual costs incurred to deliver the service. As the largest purchaser of medical care in the nation, Medicare continues to refine payment practices to reduce costs and improve quality.

  1. The Transformation of the American Hospital System:-

The demographics of the average patient changed; prior to 1965, more than two-thirds of hospital patients were under the age of 65, but by 2018, more than one-half of patients were aged 65 or older. Medicare payment methodologies favor out-patient services and treatment, rather than in-patient. As a consequence, the number of hospital beds across the nation has fallen by 33%.

  1. The stimulus for Research, New Medical Procedures, and Technology:-

The funding of Medicare has reached billions of dollars to meet the pent-up demand of elder Americans seeking medical treatments. As expected, the industry responded with new investments in facilities, equipment, personnel, and treatments. 

  1. Increasing Federal Budget Deficits:-

Medicare is inextricably bound to healthcare and suffers from the same structural problems that plague healthcare in general. Overuse of medical resources due to the disconnect between those who pay for medical services and those who receive them. Excessive administrative and paperwork costs resulting from multiple third-party payers, disparate billing and claim systems, redundant functions, and efforts by payers to control doctors and hospitals from incurring excessive costs.


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