Health Law Extends Medicare Solvency to 2029, Trustees Say

Medicare's financial stability was "substantially improved" by the passage this spring of the Patient Protection and Affordable Care Act, which will extend the solvency of the program for another 12 years to 2029, according to the 2010 Medicare Trustees Report released Thursday.

Despite the extended solvency, the trustees warned that Medicare is still not adequately financed over the next 10 years. "HI (Hospital Insurance Trust Fund) expenditures have exceeded income annually since 2008 and are projected to continue doing so under current law through 2013. However, the savings from the healthcare reform law is expected to generate surpluses from 2014 through 2022," the report states.

"Beginning in 2014, trust fund surpluses are estimated to occur throughout the short-range projection period and for several years thereafter. The shortfalls projected for the next four years can be met by redeeming trust fund assets, which at the beginning of 2010 were $304 billion, but the asset balance would fall below the Trustees' recommended minimum level starting in 2012 under the intermediate assumptions," the report states.

In 2009, 46.3 million people were covered by Medicare: 38.7 million aged 65 and older, and 7.6 million disabled. About 24% of beneficiaries enrolled in Part C private health plans that contract with Medicare to provide Part A and Part B health services. Total benefits paid in 2009 were $502 billion. Income was $508 billion, expenditures were $509 billion, and assets held in special issue U.S. Treasury securities were $381 billion, the report stated.

Projected costs are slightly lower overall than in last year's report, reflecting lower-than-expected costs in 2008-2009, which were partially offset by higher benefits from phasing out the coverage gap.

The report says the largest projected savings under the healthcare reform law comes from lower annual increases in the prices Medicare pays for services by hospitals, skilled nursing facilities, home health agencies, and most other providers. Payment increases will be reduced by the increase in "multifactor" productivity for the economy overall, which is about 1.1% per year.

Other provisions reduce Medicare costs through lower payments to private Medicare Advantage health plans. The tax hike of .9% of earnings above $200,000 for single taxpayers or $250,000 for married couples also directly benefits the Medicare Trust Fund.

Projected costs for Part B are also lower because of the health reform law, the report states. Part B spending now approximates 1.5% of Gross Domestic Product. Last year's Trustees report projected that would increase to 4.5% by the end of the 75-year projection period. However, now, under current law, it is projected to reach only 2.5% of GDP by the end of the trustees' 75-year projection period.

Part B is in financial balance because beneficiary premiums and general revenue financing are reset each year to match the expected costs for the next year.

However, the trustees said that actual Part B costs are likely to exceed current projections because Congress will continue to override Medicare payments cuts to physicians. Under the "sustainable growth rate" formula, physician payment rates would have to be reduced by about 23% on Dec. 1, 2010, a further 6.5% on Jan. 1, 2011, and 2.9% on Jan. 1, 2012.

The Medicare Part D prescription drug program is also balanced because of annual updating of enrollee premiums and federal payment rates.

The Medicare trust fund has not met the Trustees' formal test of short-range financial adequacy since 2003. In addition, the HI long-range actuarial deficit has been reduced to .66% of taxable payroll, which is one-sixth of its projected amount prior to the new health reform law, the report stated.

The Medicare Trustees are: Treasury Secretary and Managing Trustee Timothy F. Geithner; Health and Human Services Secretary Kathleen Sebelius; Labor Secretary Hilda L. Solis; and Social Security Commissioner Michael J. Astrue. Two public representatives to the board who are appointed by the president are vacant and the president's nominees await Senate confirmation. CMS Administrator Donald M. Berwick, MD, is the secretary of the board.