The Medicare program's current forecast is slightly less bleak than last year's, but the fund is headed for insolvency in 2026, say the trustees of the Medicare's Hospital Insurance Trust Fund.
This isn't exactly dance-in-the-street news but the federal Medicare program is heading for insolvency at a slightly slower pace than previously forecast.
Thanks to lower projected spending, lower projected Medicare Advantage program costs, and some technical changes in calculating projections, Medicare's Hospital Insurance Trust Fund will remain solvent until 2026, the 2013 Medicare Trustees Report shows. That's two years longer than the 2012 report estimated.
The reprieve extends to 2014 premiums for Medicare Part B, which pays outpatient expenses. Those premiums are expected to remain unchanged from 2013 levels. Also, the report confirms that Medicare Part B and Part D, which provides access to prescription drug coverage, will remain adequately financed indefinitely, in accordance with current federal law.
The fact remains, however, that the Medicare program is still headed for insolvency. "The core message from the trustees is that Medicare's financial future remains in jeopardy and structural reform is essential… it cannot be argued that the status quo is sustainable," said Mary R. Grealy, in a prepared statement. Grealy is president of the Healthcare Leadership Council, a coalition of healthcare chief executives.
The report notes that as it has since 2008, the Trust Fund will continue to pay out more in hospital benefits and other expenditures than it receives in income—a trend that is expected to continue until reserves depleted. Interest earnings and asset redemptions cover the difference. In 2012, $11 billion in interest income and $24 billion in asset reserves were used to cover the shortfall.
Contributing to continuing Trust Fund woes are low birth rates, which mean smaller future workforce volumes available to support the millions of baby boomer retirees now entering the Medicare program. In 2025, a year before latest projected insolvency, Medicare is expected to have 73 million beneficiaries.
In making their annual plea for lawmakers to address the financial challenges facing Medicare "as soon as possible," the Medicare trustees, four federal officials and two public representatives, noted that for the seventh consecutive year, the Social Security Act requires that they issue a "Medicare funding warning because projected non-dedicated sources of revenues?primarily general revenues?are expected to continue to account for more than 45% of Medicare's outlays in 2013, a threshold breached for the first time in fiscal year 2010."
Whether Congress is ready to take serious steps to resolve Medicare issues remains to be seen. Medicare physician payment reform is much talked about on Capitol Hill but has so far been delayed for 10 consecutive years.
A 2011 study by the nonpartisan Kaiser Family Foundation found that raising the Medicare eligibility age from 65 to 67 in 2014 would generate about $7.6 billion in net savings to the federal government, but it would add $5.6 billion in out-of-pocket costs for 65- and 66-year-olds, and $4.5 billion in employer retiree healthcare costs.
As is expected, administration officials were quick to credit the Patient Protection and Affordable Care Act with strengthening Medicare's finances by reducing the cost of care. "Medicare spending per beneficiary increased by just 0.4% last year, far below historical averages," Kathleen Sebelius, the Secretary of the Department of Health and Human Services, stated during a press conference to announce the report findings.
The reaction to the Trustee's Report by healthcare stakeholders has been generally positive. Joe Baker, president of the Medicare Rights Center, an advocacy group, noted in a statement that with insolvency delayed by two years, policymakers "have time to test and expand value-driven delivery system and payment reforms designed to improve health care quality while simultaneously driving down the cost of care. The Affordable Care Act offers a blueprint for these reforms, and testing of many promising reforms is already underway."
While praising the slowdown in healthcare spending, Chip Kahn, president and CEO of the Federation of American Hospitals, said in a statement that "hospitals are absorbing more than $400 billion in spending cuts at the same time that Medicare beneficiary enrollment is expanding at an average annual rate of 3%."
Rich Umbdenstock, president and CEO of the American Hospital Association, released remarks saying that hospitals are doing their part to hold healthcare costs down "hospital cost growth at its lowest rate in 10 years."
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
