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Medicare News
Medicare Trustees Annual Report Requires Response
from Bush on Funding Problem
Second year projecting over 45% must be
funded by general revenues
 April 23, 2007 – The Medicare Trustees released
their annual report today, which as expected, projects program costs
financed by general revenues, rather than dedicated revenue, are
expected to exceed 45% in 2013. Because this was the second consecutive
year of such a projection, it triggers a funding warning that requires
President Bush to propose legislation to respond to the issue within 15
days following the release of the Fiscal Year 2009 Budget, which will be
in early February, 2008. There were pieces of good news, however,
including cost projections for the Part D drug program that are 13%
lower than last year.
There was also good news, reporting that Medicare’s
Hospital Insurance Trust Fund is projected to be exhausted in 2019,
which is one year later than estimated in last year's report. This
change results from slightly higher projected income and slightly lower
projected expenditures than shown in last year’s report. HI expenditure
growth is estimated to average 7.2 percent per year over the next 10
years.
The Trustees issued the determination of “excess
general revenue Medicare funding.” because this result falls within the
first seven years of the projection period (2007-2013).
The law requires Congress to consider the
President’s proposals for correcting the problem on an expedited basis.
The Medicare 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.
The report shows that while Medicare’s financial
outlook remains troubling, the program’s outlook has improved slightly
compared to last year’s estimate, says the news release from the CMS
Office of Public Affairs.
The Trustees note that Medicare expenditures were
$408 billion in 2006, or 3.1 percent of gross domestic product (GDP),
and are projected to increase to over 11 percent of GDP in 75 years.
HHS Secretary Mike Leavitt said the report points
to the need to act quickly and efficiently to strengthen and improve
Medicare, including enactment of the steps proposed in the President’s
budget to address Medicare's fiscal health.
“Medicare reminds us of the great dilemma of health
care – the things that are priceless are not price free,” Leavitt said.
“We are making progress toward finding peace
between the two – toward addressing long-term solvency while providing
up-to-date care. But today’s report shows us that we have a long way to
go.”
“We are already beginning to implement steps to
protect Medicare for future generations,” said Centers for Medicare &
Medicaid Services Acting Administrator Leslie V. Norwalk.
“Medicare is now providing up-to-date preventive
benefits and comprehensive drug coverage and is developing better
information on quality and costs of health care to ensure that we pay
appropriately for the health care of our beneficiaries. A critical
element of this process is the movement we have underway for Medicare to
change from being a passive payer of services to becoming an active
purchaser of high-quality, efficient care.
“Until those steps are fully implemented, today’s
report starkly demonstrates the need to act to change Medicare’s current
growth trajectory.”
As the Trustees note in this report, “These
projections demonstrate the need for timely and effective action to
address Medicare’s financial challenges. Consideration of such reforms
should occur in the relatively near future. The sooner the solutions are
enacted, the more flexible and gradual they can be.”
“This report shows once again that we are on an
unsustainable course for Medicare spending,” Secretary Leavitt
said. “If Congress were to embrace the President’s budget, we could not
only eliminate this funding warning, we could also extend the life of
the Hospital Insurance Trust Fund four years.”
Lower Costs for Drug Program
An important element of good news in this year’s
Trustees Report involves the new prescription drug benefit under
Medicare Part D, according to the news release from CMS.
The latest cost projections for Part D through 2015
are 13 percent lower than estimated in last year’s report (and
substantially lower than the original estimates from 2003).
Plan bids for 2007 were 10 percent lower than in
2006, as a result of intense competition among plans to attract and
retain enrollees and plans’ expectations to further increase use of
inexpensive generic drugs, rather than more costly brand-name
equivalents.
In addition, overall prescription drug costs have
increased much more slowly during 2004-2006 than in prior years.
Together, these developments reduce projected Part D costs significantly
compared to the estimates in last year’s Trustees Report.
Additionally, the CMS release says that “because
Part D benefits are provided through private drug insurance plans that
receive federal subsidies, competition in the free marketplace has
provided multiple benefit choices for Medicare beneficiaries at very
affordable premiums.”
Costs in all three components of Medicare are
expected to increase rapidly. Although the Supplementary Medical
Insurance trust fund is automatically in financial balance because
beneficiary premiums and general revenue financing are reset each year
to match the following year’s expected costs. Part B benefit payments,
however, have increased by an average of 10.7 percent annually over the
past five years, driven largely by outpatient hospital, durable medical
equipment, and other spending, together with above-average growth in
utilization of physician services, according to CMS.
Part A payments have increased by an average of 6.0
percent annually over the past five years. This continuing rapid growth
remains a concern.
The Trustees also emphasize that actual Part B
costs are very likely to exceed the current-law projections, as the
Trustees anticipate that Congress will continue to override an existing
provision that would otherwise require substantial reductions in
Medicare payments to physicians over the next 10 years.
Under the competitive approach used for Part D,
beneficiaries and their caregivers, with support from Medicare and many
local partners around the country, are using information on prices and
coverage to choose prescription drug plans that are best for them
personally in terms of formulary coverage, monthly premiums, and other
benefit features.
Competition, together with good information on
quality and price, has the potential to lead to cost savings in many
other areas of Medicare as well. CMS is implementing competitive
reforms in traditional fee-for-service Medicare now as well, including
in durable medical equipment, Part B drug pricing, and other areas.
“The Trustees’ report is yet another important
reminder that we must do all we can to better manage this unsustainable
growth in health care costs,” Norwalk said. “Similarly, the CMS Office
of the Actuary recently note that national health expenditures will
double over the next decade. This trend, along with this year’s
Trustees report and the Medicare funding warning, should be a clear
signal that we must accelerate our efforts to improve the efficiency and
value of the Medicare program.”
Additional reforms and initiatives can help address
Medicare's financial condition by shifting the program’s focus to
preventing costly complications and getting the right care to each
patient—rather than simply paying more for more medical services and for
more complications. Such initiatives and proposals cited by CMS include
the following:
● Implementing reductions in market basket rates
of growth, as proposed in the President’s 2008 Budget, including a
proposed 0.4 percent reduction in the growth rate of Medicare payments
if Congress does not pass a specific alternative proposal to achieve
needed improvements in sustainability;
● Increasing the share of program costs paid by
the highest-income beneficiaries, as proposed in the 2008 budget;
● Pilot-testing quality and efficiency measures
and developing strategies to pay more for better results rather than
more services; and
● Implementing competitive bidding approaches to
the delivery of care.
The Medicare trustees are Treasury Secretary and
Managing Trustee Henry M. Paulson, Jr., Secretary of Health and Human
Services Mike Leavitt, Labor Secretary Elaine L. Chao, and Social
Security Commissioner Michael J. Astrue. Two other members are appointed
by the President and represent the public. The public trustees are John
L. Palmer and Thomas R. Saving. Leslie V. Norwalk, Acting Administrator
of the Centers for Medicare & Medicaid Services, serves as Secretary to
the Board of Trustees.
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