New Trustees Report Says Medicare Going Broke
Slightly Faster than Expected
‘We need to act quickly and effectively to address
Medicare’s fiscal health’ HHS Secretary
More reports...
Sector Snap: Medicare
Hospitals, Insurers Still Expected to Feel Long-Term Squeeze
From Medicare Funding Deficit
March 26, 2008: 12:05 PM EST
NEW YORK (Associated Press) - A
government outlook for sooner-than-expected financial pressure
on the Medicare program, coupled with broader economic worries,
helped weigh down shares of hospital operators and health
insurers Wednesday. Read more at CNN…
>> Read report by
KaiserNetwork.org below main story.
March 26, 2008 – As many have long known, Medicare
is under a great deal more financial stress than the Social Security
program, and this was confirmed yesterday by the annual report of the
Medicare Trustees that says Medicare’s Hospital Insurance (HI) Trust
Fund will become insolvent slightly earlier in 2019 than reported last year.
Both the HI Trust Fund and the Supplementary
Medical Insurance Trust Fund expenditures are growing faster than the
rest of the economy. The Trustees report expenditures were $432 billion
in 2007, or 3.2 percent of gross domestic product (GDP), and are
projected to increase to nearly 11 percent of GDP in 75 years, according
to a report from Health and Human Services..
HI expenditure growth is estimated to average 7.4
percent each year over the next 10 years, a higher rate than either
Gross Domestic Product (GDP) or Consumer Price Index (CPI) growth.
Republicans want to cut Medicare, Medicaid;
Democrats want to expand VA health care, key report says traditional
Medicare more efficient than Medicare Advantage
This year the HI Trust Fund will spend more than
its income, and from 2009 through 2017, about $342 billion will need to
be transferred from the Federal treasury to cover beneficiaries’
hospital insurance costs.
“We need to act quickly and effectively to address
Medicare’s fiscal health, including enacting the steps proposed in the
President’s budget, which would postpone the insolvency date of the Part
A trust fund for ten years,” said Health and Human Services Secretary
Mike Leavitt.
“Congress should also act immediately on the smart
changes put forward by the Administration after last year’s funding
warning, which would allow the program to be modernized and
transformed.”
“Although Congress has never allowed a Medicare
trust fund to become exhausted, under the current payment structure, a
person who is 54 years old today can not be assured that Medicare
hospital insurance benefits will be there when he or she turns 65 and
first becomes eligible for Medicare,” said Centers for Medicare &
Medicaid Services Acting Administrator Kerry Weems.
“That’s why we are already beginning to implement
steps to make health care services under Medicare as effective and
efficient as possible for beneficiaries.”
The Supplementary Medical Insurance (SMI) Trust
Fund is automatically 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.
However, Part B benefit payments have increased by
an average of 9.6 percent for each of the past five years and that
continued growth remains a concern.
The Trustees emphasize that actual Part B costs are
very likely to exceed the current-law projections, primarily because the
Trustees anticipate that Congress will continue to override an existing
provision in the Medicare law that would require substantial reductions
in Medicare payments to physicians over the next 10 years.
“We need to transform the program from being a
passive bill-payer to an active purchaser of healthcare by giving
quality and cost information to providers and beneficiaries to choose
the most effective and efficient care,” said Weems.
“We are also testing new forms of provider payments
to reward providers who deliver the highest value to our beneficiaries.
We can do this by enhancing competitive bidding strategies, paying more
to higher quality providers than lower quality, and demonstrations that
use care coordination, bundling and electronic health records.”
In comparison to the status of the Part A and Part
B programs, expenditures for Part D have consistently been lower than
projected.
The 2007 report continues to project lower
spending, primarily due to a significant reduction in bids. However,
costs over time are still expected to increase at an average annual rate
of about 11.1 percent through 2017, down from the 12.6 percent estimated
last year.
Part D benefit coverage is provided through private
drug insurance plans that participate in Medicare and receive Federal
subsidies that lower beneficiary premiums and reduce plan financial
risks. Compared to last year’s Trustee report estimates, premiums for
basic coverage in 2008 are lower than anticipated in last year’s report.
Rebates from manufacturers in 2008 are expected to be higher than last
year’s estimates.
Growth in Population Age 65 & Over
- shows the
percentage of U.S. population over the age of 65. The chart
shows a steady increase from 1950 where it was approximately 8%
and projects the percentage could increase to reach over 20% by
the year 2050. Click map for larger view.
As required by the Medicare Modernization Act
(MMA), 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 2014.
Because this result falls within the first 7 years
of the projection period (2008-2014), the Trustees have issued a
determination of “excess general revenue Medicare funding” for the third
consecutive year.
When this determination is made in two consecutive
Trustees Reports, a “Medicare funding warning” is 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.
The Medicare funding warning was first triggered by
the 2007 report and is triggered again with the 2008 report. The funding
warning requires the President to propose legislation to respond to the
issue within 15 days following the release of the next fiscal year’s
budget and the Congress is required to expeditiously consider the
President’s proposals. President Bush submitted legislation in February
2008 in response to the 2007 Medicare funding warning and Congress has
taken no action.
Trust Funds exhausted in 2041 - the same as last
year’s estimate
March 26, 2008 – The 2008 report by the Social
Security Board of Trustees shows improvement in the projected long-term
financial status of the Social Security program from last year -
particularly in the later years of the long-range projection period.
This improvement is principally the result of methodological changes for
projecting certain aspects of immigration, says a news release from
Social Security.
Read more...
As a result of the new funding warning, the
President must again submit to Congress proposed legislation to respond
to the warning within 15 days of the release of the next fiscal year’s
budget.
As the Trustees note, “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.”
Administration Suggests Free Market Approach
One possible solution, according to a news release
from Health and Human Services, “is the competitive approach used for
Part D where 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 best fit their individual needs 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 beginning to implement
competitive reforms in durable medical equipment, Part B drug pricing,
and other areas.”
The HHS statement said 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.
About Medicare...
The Medicare Program is
second only to Social Security as the largest social insurance
program in the U.S., with 44.1 million beneficiaries and total
expenditures of $432 billion in 2007.
The Boards of Trustees for
Medicare report annually to the Congress on the financial
operations and actuarial status of the program. Beginning in
2002, there is one combined report discussing both the Hospital
Insurance program (Medicare Part A) and the Supplementary
Medical Insurance program (Medicare Part B and Prescription Drug
Coverage). The Office of the Actuary in the Centers for Medicare
& Medicaid Services (CMS) prepares the report under the
direction of the Boards.
HHS suggests that such initiatives and proposals
include:
● Basing payment levels on provider reports on
quality and their ability to prevent costly and life-threatening
hospital acquired infections;
● Providing transparent quality and cost
information to beneficiaries and providers;
● Developing and testing strategies to pay more
for better results rather than more services;
● Implementing competitive bidding approaches to
the delivery of care;
● Promoting the adoption of interoperable health
information technology;
● Implementing reductions in market basket rates
of growth, as proposed in the President’s 2009 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; and
● Increasing the share of program costs paid by
the highest-income beneficiaries, as proposed in the 2009 Budget.
The Medicare trustees are Treasury Secretary and
Managing Trustee Henry M. Paulson, Jr., Secretary of Health and Human
Services Michael O. 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. These two positions are
currently vacant. Kerry N. Weems, Acting Administrator of the Centers
for Medicare & Medicaid Services, serves as Secretary to the Board of
Trustees.
March 26, 2008 - The Medicare hospital insurance
trust fund will become insolvent by 2019, the estimate given last year,
according to a report released on Tuesday by the board of trustees for
Medicare and Social Security, the
New York Times reports (Pear, New York Times, 3/26). The trustees
projected that Medicare spending will increase from 3.2% of gross
domestic product in 2007 to 10.8% in 2082, which is slightly less than
trustees predicted last year (Wayne, CQ Today, 3/25).
According to the report, Medicare will spend more
than it brings in from taxes this year, but it will continue to receive
significant interest income. The trustees indicated that Medicare
outlays will exceed income by 2010. The long-term deficit for the
program equals 3.54% of taxable payrolls, and fixing funding for the
program over the next 75 years would require an increase in the Medicare
payroll tax from 2.9% to 6.4% or a 51% reduction in payments to
hospitals, nursing homes and home health care (Nutting, Dow Jones,
3/25).
In addition, the trustees predict a steep increase
in the cost of a separate trust that pays for physician services and
other outpatient care. However, that trust would not become insolvent
because, under federal law, it has access to general revenue, and
beneficiaries' premiums can be adjusted to cover about 25% of expected
costs of Medicare Part B. The standard Part B premium increased by 64%
over the past five years to $96.40 per month. Under the existing
formula, the premium will remain at that level this year and next year,
according to the trustees. However, the report said those projections
were unrealistic because they assumed the Medicare payments to
physicians would be reduced by more than 10% in July and an additional
5% in January 2009, as well as in each of the next seven years for total
reductions of about 40%. Congress usually intervenes to block the
physician payment cut (New York Times, 3/26).
According to the report, "The financial
difficulties facing Social Security and Medicare pose enormous
challenges." The report states, "The sooner these challenges are
addressed, the more varied and less disruptive their solutions can be" (Crutsinger,
AP/Connecticut Post, 3/26).
Medicare Funding Warning
The trustees also issued a "Medicare funding
warning," which will require the next president to propose a plan to
reduce the program's use of general tax revenues, CQ Today reports.
Under the 2003 Medicare law, the funding warning is triggered when
trustees estimate for two consecutive years that federal general fund
revenue will finance more than 45% of total program costs within seven
years. In response to last year's warning, President Bush proposed a
plan that would require higher-income beneficiaries to contribute
higher Medicare premiums and limit awards in medical malpractice
lawsuits. The proposal has been introduced in the House and Senate, but
the bills are not expected to advance, according to CQ Today (CQ Today,
3/25).
Presidential Candidates
All three leading presidential candidates "agree
that Medicare's problems are part of the larger dilemma of rising health
care costs and that they have similar kinds of proposals to try to rein
them in without tax increases or benefit cuts," the
Los Angeles Times reports. The candidates have proposed reducing
costs by better coordinating care for people with chronic conditions,
paying physicians and hospitals for quality of care rather than quantity
of services provided, reducing prescription drug costs and emphasizing
preventive care (Alonso-Zaldivar, Los Angeles Times, 3/26).
Presumptive Republican presidential nominee Sen.
John McCain (Ariz.) has said he would use Medicare as a lever to
push for other changes in the U.S. health care system, the Wall Street
Journal reports (Barkley/Zhang, Wall Street Journal, 3/26).
Democratic presidential candidate Sen.
Barack Obama (Ill.), responding to the report, said, "As president,
I will reduce costs in the Medicare program by enacting reforms to lower
the price of prescription drugs, ending the subsidies for private
insurers in the Medicare Advantage program and focusing resources on
prevention and effective chronic disease management" (New York Times,
3/26). Democratic presidential candidate Sen.
Hillary Rodham Clinton (N.Y.) on Tuesday said that Medicare "is much
more in crisis" than Social Security "and deserves closer attention"
(Wall Street Journal, 3/26).
Reaction
Department of Treasury Secretary Henry Paulson said, "If we do not
take action soon to reform Social Security and Medicare, the coming
demographic bulge will jeopardize the ability of these programs to
support people who depend on them. Without changes, rising costs will
drive government spending to unprecedented levels, consume nearly all
projected federal revenues and threaten America's future prosperity."
Senate Finance Committee ranking member Chuck Grassley (R-Iowa)
said, "Congress failed in recent years to respond to President Bush's
call to strengthen Social Security, and there's no indication in this
year's budget resolution or congressional agenda that lawmakers will
make headway in making Medicare or Medicaid more fiscally fit" (Koffler,
CongressDaily, 3/25).
However, House Ways and Means
Health Subcommittee Chair Pete Stark (D-Calif.) said, "Reports of
Medicare's death have been greatly exaggerated" (Wolf,
USA Today, 3/26).
Trust Funds exhausted in 2041 - the same as last
year’s estimate