Medicare Fund Gets an Independent Actuarial Review

Medicare's Hospital Insurance Trust Fund is projected to remain solvent only until 2024, the 2011 Medicare Trustees report shows.

But an alternative scenario outlined in an independent actuarial study of the Medicare Trustees Report presented to the Centers for Medicare & Medicaid Services this month, paints a darker picture of the program's prospects. It projects sharp cost increases and difficulties in achieving sustainable reductions in spending on hospital services.

The report was authored by CMS' independent actuary. "Presenting an alternative look at another report is something we do," explained Donald McLeod, a CMS press officer. "The purpose isn't to say one report is right and the other is wrong."

While the independent analysis agrees with the Trustee report that Medicare's HI Trust Fund will remain solvent until 2024, the independent report forecasts significant increases in the cost of physician and hospital services as early as 2012.

Physician Reimbursement Reductions
The actuarial report uses a different set of assumptions for physician reimbursements and productivity adjustments. Its projections demonstrate what could happen to Medicare when Congress, as expected, overrides the 29% physician reimbursement reduction scheduled for 2012 and phases out cuts to hospitals, nursing homes, and home health agencies.

The Trustees report leaves the physician reimbursement reduction in place. Although the Trustee report termed that outcome as "unrealistically constrained," the reduction remains the basis for analysis of the Medicare Part B costs, which include physician bills and other outpatient expenses. That helped create a more financially favorable outcome for the Medicare HI Trust Fund as well as Medicare Part B.

Productivity Adjustments
Unlike the Trustees report, the actuarial report assumes that productivity adjustments for increasing provider efficiency would not be sustainable over the long run because the same level of improvement couldn't be maintained. That means that reductions in spending on hospital services touted in the Trustees report would be more difficult to achieve.

With the changes, according to the actuarial report, physician reimbursements for 2012 would increase from $220.3 billion to $248.2 billion. That means that instead of dropping 3.7% from 2011 to 2012 as per the Trustee report, reimbursements would actually post an 8.5% increase.

Under current law hospitals would post an actuarial deficit of 0.5% over 25 years based on the Trustee report. Based on projections in the actuarial report, that deficit would be 0.62%. And without the cuts, hospital costs would become a larger part of the Gross Domestic Product: an estimated 2.03% in 2030 under current law compared to 2.14% according to actuarial projections. No dollar figures are included for hospitals.

The actuarial report concludes that "the projections shown in the 2011 Medicare Trustees Report for current law should not be interpreted as our best expectation of actual Medicare operations in the future, but rather as illustrations of the very favorable impact of permanently slower growth in healthcare costs, if slower growth can be achieved."