Medicare Hospital Fund Will Be Insolvent By 2017, Two Years Earlier Than Expected, Trustees Say

Main Category: Medicare / Medicaid / SCHIP
Also Included In: Public Health
Article Date: 14 May 2009 - 5:00 PDT

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The trust fund that Medicare uses to pay for beneficiaries' hospital care will be insolvent by 2017, as the program since last year has been paying out more than it collects in taxes and interest, in part due to the worsening economy, according to a Medicare Payment Advisory Commission report issued Tuesday, the Washington Times reports. This estimated date of insolvency is two years earlier than that predicted by the trustees last year. Medicare would have to deposit $13.4 trillion -- $1 trillion higher than last year's estimate -- into an interest-earning account today in order for the hospital fund to pay its scheduled benefits over the next 75 years, according to MedPAC. The program's total unfunded obligation, which includes doctor and prescription drug benefits, is $37.8 trillion, MedPAC said (Dickson, Washington Times, 5/13). These calculations include a 21% payment cut for providers scheduled to take effect this year. However, Congress typically has eliminated this reduction (Farnam, Wall Street Journal, 5/13).

"The financial outlook for the hospital insurance trust fund is significantly less favorable than projected in last year's annual report," the trustees said, adding, "Actual payroll tax income in 2008 and projected future amounts are significantly lower than previously projected, due to lower levels of average wages and fewer covered workers" (Pear, New York Times, 5/13). Since the recession began, 5.7 million workers have lost their jobs, according to the Washington Times (Washington Times, 5/13). The trustees estimated that in coming years, Medicare spending will rise faster than workers' earnings or the economy as a whole (New York Times, 5/13). According to CQ HealthBeat, "'Exhaustion' of the hospital fund does not mean it would run out of money," but that it would be unable to pay full reimbursements for hospital benefits by 2017. The fund likely would pay 81 cents per dollar claimed by hospitals. According to the report, the trust fund "would be brought into actuarial balance over the next 75 years by changes equivalent to an immediate 134% increase in the payroll tax ... or an immediate 53% reduction in program outlays, or some combination of the two" (Reichard, CQ HealthBeat, 5/12).

Trustees say that while the financial standing of Social Security decreased more sharply than Medicare last year, the health program remains at greater risk of insolvency (New York Times, 5/12). This report would traditionally start a process known as the "Medicare trigger," which requires the president and Congress to develop legislation to extend Medicare's fiscal viability, but the House earlier this year approved rules that Democratic leaders said eliminated this requirement (CQ HealthBeat, 5/12).

Medicare Parts B, D
The Medicare programs that cover outpatient care and pharmaceuticals -- which are funded by premiums and taxes -- are not at risk of insolvency, although costs for beneficiaries are expected to rise along with overall health care spending, according to CQ Today (Clarke, CQ Today, 5/12). If Social Security recipients receive no cost-of-living increase next year or in 2011, as predicted by the trustees, about one-quarter of Medicare beneficiaries -- including new beneficiaries and those whose incomes are higher than $85,000 for individuals or $170,000 for couples -- would have higher Part B premiums. The beneficiaries would see monthly premiums for the outpatient benefit -- typically deducted from Social Security checks -- increase from $96.40 to about $104 in 2010 and $120 in 2011. Three-quarters of Medicare beneficiaries would see no premium increases, but the remaining beneficiaries would have to pay more to keep the Part B trust fund at the same level (New York Times, 5/12).

Reaction
At a Tuesday press briefing, Treasury Department Secretary Timothy Geithner said, "The most effective entitlement reform measure will be a major health reform that helps bring down the growth rate of national health care spending" (CQ HealthBeat, 5/12). HHS Secretary Kathleen Sebelius said that the best way to ensure Medicare's solvency is to "fix what's broken with the rest of the health care system," noting that if U.S. residents have health insurance and access to sufficient care earlier in their lives, they will be less expensive to care for once they join Medicare (Goldstein, Washington Post, 5/13). When asked what the Obama administration would do if an overhaul does not produce desired results after a few years, she said, "We know that preventive care is more cost effective than critical care, ... that coordinating end-of-life care will help to lower costs in the long run, ... that if we can reduce readmission to the hospital ... and cut down on hospital infection that will lower overall costs" (CQ HealthBeat, 5/12).

The administration has proposed several changes to Medicare aimed at reducing spending, including cutting payments to private insurers and allowing the government to negotiate for lower prices from drugmakers. However, these potential savings "won't come close to fully offsetting the increasing cost of the program," the Wall Street Journal reports. Many of these savings already are reserved for funding the administration's health reform plans (Wall Street Journal, 5/13).

House Ways and Means Health Subcommittee Chair Pete Stark (D-Calif.) said that "while opponents will use this as another excuse to arbitrarily slash and burn Medicare, our energies are better focused on how to reform our health system and rein in the rising health costs," adding that "we have seen worse reports in years past and the Congress has always stepped in to strengthen the program's financial footing, and we will do so again." Senate Finance Committee ranking member Chuck Grassley (R-Iowa) said, "Kicking the can down the road isn't an option anymore because we're at the end of the road. Necessary policy reform to add efficiency and improve Medicare's fiscal health without cutting benefits will take time to implement." He added, "If Congress waits, the savings from those changes won't materialize until after the program becomes insolvent. At that point, the only options would be cutting provider payments, reducing benefits or raising payroll taxes" (CQ HealthBeat, 5/12). Rep. Tom Price (R-Ga.), head of the Republican Study Committee, said, "The government-run health care programs we already have are unsustainable. It should be obvious that putting more people under the inflexible control of Washington is no way to bring down medical costs, and it's certainly no way to provide health care of the highest quality" (Levey, Los Angeles Times, 5/12).

MedPAC Personnel
MedPAC Chair Glenn Hackbarth has been reappointed to a new three-year term, according to Gene Dodaro, acting comptroller general and head of the Government Accountability Office. GAO also said that Robert Berenson, an Urban Institute senior fellow, and Herb Kuhn, former CMS deputy administrator and Center for Medicare Management director under the George W. Bush administration, will join the commission. MedPAC advises lawmakers on issues including Medicare Advantage and the Medicare fee-for-service plans, and "its recommendations carry much weight," CQ HealthBeat reports (Norman, CQ HealthBeat, 5/11).

Broadcast Coverage
NPR's "All Things Considered" on Tuesday reported on the implications of the MedPAC report (Ydstie et al., "All Things Considered," NPR, 5/12).

On Wednesday, NPR's "Morning Edition" included a discussion with David Wessel of the Wall Street Journal about the trustees' report (Inskeep, "Morning Edition," NPR, 5/13).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation.

© 2009 Advisory Board Company and Kaiser Family Foundation. All rights reserved.

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