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Medicare Trustees Deliver Grim Outlook

 |  By Margaret@example.com  
   May 16, 2011

A weak economy, lower incomes, and higher healthcare costs mean trouble for Medicare’s Hospital Insurance Trust Fund, which is now projected to remain solvent until only 2024, the 2011 Medicare Trustees report shows. That’s five years earlier than the 2010 report estimated.

But the latest report says things could be worse. Without the reforms in the Affordable Care Act, the Medicare HI Trust Fund would expire in just five years—in 2016. So, according to the report, the healthcare reform bill added eight years of solvency to the portion of the Medicare Part A program, which pays for inpatient hospital care, skilled nursing facility care, and home health and hospice care.

The Trustees report has renewed a call for Congressional action to resolve Medicare’s problems. Opinions about what steps to take are divided along political lines. In a press statement, Treasury Secretary Timothy Geithner said while the ACA “has significantly strengthened Medicare’s finances and extended the life of the Medicare trust fund” the Trustees’ report underscores “the need to act sooner rather than later to make reforms to our entitlement programs.” Administration reforms proposals have focused on quality improvements, incentive payments and capping Medicare expenditures based on the gross domestic product.

On the other side of the aisle, House Speaker John Boehner (R-OH) offered a different take on the trustee report. With a nod to Rep. Paul Ryan’s (R-WI) budget and Medicare reform proposals Boehner said in a press statement: “We’ve outlined a proposal that would mean no changes for anyone age 55 and up, while making reforms to ensure that Medicare is around when younger Americans and future generations are ready to retire. The biggest threat Medicare faces right now is the status quo. The Trustees' report makes it clear that if we do nothing, Medicare will not be able to pay promised benefits to American seniors  --  and sooner than we thought.”

A 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.

HI is funded through payroll taxes paid, income taxes paid on Social Security benefits, and interest from trust fund investments. HI Trust Fund expenditures have exceeded income each year since 2008, the report says. Interest earnings and asset redemptions are required to cover the difference. HI Trust Fund assets are projected to cover annual deficits through 2023, with asset depletion beginning in 2024.

In 2010, $32.3 billion in trust fund assets were redeemed to cover the shortfall.

At least for now things look better for the Supplementary Medical Insurance Trust Fund where expenditures for Parts B and D were lower than expected this year, the report says. The SMI is financed through beneficiary premiums and general revenue income for Parts B and D are reset each year to match expected costs.

Part B costs, which include physician bills and other outpatient expenses, have increased at an average 6.9% annually over the last five years but under current law are projected to increase by only 4.7% annually for the next five years. That projection, which is characterized in the report as “unrealistically constrained,” assumes that Congress will let stand a 29% reduction in physician reimbursements scheduled for 2012.

The American Medical Society jumped on the report to encourage the immediate repeal of the “broken Medicare physician payment formula.” In a press statement J. James Rohack, a past president of the AMA, said the organization supports “a three-step-process to reform the Medicare physician payment system, including repealing the failed sustainable growth rate formula, enacting a five year period of stable Medicare physician payments, and testing of demonstration and pilot projects that would form the basis for a new physician payment system.”

A reduction in spending on prescription drugs over the next decade will help hold down Part D expenditures, the report shows.

In 2010, 47.5 million people were covered by Medicare, including 39.6 million aged 65 and older, and 7.9 million disabled. About 25% of the beneficiaries were enrolled in Part C private health plans that contract with Medicare to provide Part A and Part B health services. Total benefits paid in 2010 were $516 billion. Income was $486 billion, expenditures were $523 billion, and assets held in special issue U.S. Treasury securities were $344 billion.

The Trustees report says the difference between Medicare’s total outlays and its dedicated financing sources is estimated to reach 45% of outlays in fiscal year 2011. That means federal general revenues will be a substantial share of total financing for Medicare. This has occurred each of the past six years and requires Congressional action to remedy.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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