Affordable Care Act Improves Financial Outlook For Medicare

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Main Category: Medicare / Medicaid / SCHIP
Article Date: 08 Aug 2010 - 11:00 PDT

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The Medicare Board of Trustees announced that the economic outlook for both trust funds that support Medicare have been significantly improved thanks to the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010.

Medicare's Hospital Insurance Trust Fund is now projected to remain solvent for an extra 12 years, until 2029, the Trustees report states.

Additionally, Medicare's Hospital Insurance Trust Fund (HI) long-range actuarial deficit has been reduced to 0.66% of taxable payroll, or one-sixth of its projected amount prior to the Affordable Care Act.

Fund surpluses are expected during the 2014-2022 period, even though HI costs are expected to exceed trust fund income over the medium term, as they have since 2008, the Trustees report informs.

Part B

The Affordable Care Act will also result in much lower projected costs for the Part B account in the Supplementary Medical Insurance (SMI) Trust Fund. Nearly 1.5% of GDP (gross domestic product) is taken up by current Part B spending. The report had projected an 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% GDP by the end of the Trustees' 75-year projection period - a considerable decrease.

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

The Trustees state that actual Part B costs are very likely to exceed the current law projections because Congress is expected to continue to override an existing provision in the Medicare law that would require substantial reductions in Medicare payments to physicians over the next 3 years.

Under the current "sustainable growth rate" (SGR) 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.

Part D

The Medicare prescription drug program (known as Part D) is in financial balance too, as a result of annual updating of enrollee premiums and federal payment rates, the report states.

Projected costs are generally a little lower than in last year's report, reflecting lower-than-expected costs in 2008-2009, which were partly counterbalance by higher benefits from phasing out the coverage gap.

Sources of savings

The Trustees report adds that the bulk of the projected savings under the Affordable Care act comes from reduced yearly increases in Medicare payments for services by hospitals, skilled nursing, home health agencies, and many other providers.

Payment increases will be reduced by the increase in "multifactor" productivity for the economy overall, which is about 1.1% annually.

Other Affordable Care Act specifications bring down Medicare costs through lower payments to private Medicare Advantage health plans. The extra contribution of 0.9% of earnings above $200,000 for single taxpayers or $250,000 for married couples filing joint returns which directly benefits the Medicare Hospital Insurance Trust Fund also aids in improving Medicare's financial outlook. Because the earnings thresholds are not indexed, an increasing proportion of workers will be affected by the additional HI payroll tax over time.

Dedicated Revenues

As required by the 2003 Medicare Modernization Act, the Trustees compare overall projected Medicare expenditures with the program's "dedicated revenues" - principally HI payroll taxes, certain income taxes on Social Security benefits, beneficiary premiums, and special State payments to Part D. The portion of program costs financed by general revenues (rather than by "dedicated revenues") is projected to exceed 45 percent in 2010. This result leads to a determination of "excess general revenue Medicare funding" for the fifth consecutive year. Because this determination has been made in two consecutive Trustees Reports, a "Medicare funding warning" is again triggered. The funding warning indicates that the level of federal general revenues required to finance Medicare is an important concern, but it does not signify that program benefits cannot be paid.

Short- and long-term

The changes in the Act bring the HI trust fund much closer to long- and short-term financial balance.

The report adds that further policy initiatives will be required in order to make sure that the HI Trust Fund meets the Trustees' test of short-range financial adequacy or the test of long-range actuarial balance.

The Trustees reported that the time gained by postponing the depletion of the HI trust fund should be used to determine effective solutions to the remaining long-range HI financial imbalance. We believe that solutions can and must be found to ensure the financial integrity of HI and to reduce the rate of growth in Medicare costs, building on the strong measures enacted as part of the Affordable Care Act.

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 other members are public representatives who are appointed by the President, subject to confirmation by the Senate. Currently, these positions are vacant, and the President's nominees await Senate confirmation hearings. CMS Administrator Donald M. Berwick, M.D., is designated as Secretary of the Board.

Click here to view the Trustees Report (PDF).

Written by Christian Nordqvist
Copyright: Medical News Today
Not to be reproduced without permission of Medical News Today

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