Solvency of Medicare Extended 12 Years by Health
Reform Says Report by Trustees
Big savings from belt tightening in Affordable Care
Act Helping to extend life of Medicare Trust Fund
Aug. 6, 2010 – The solvency of the Medicare Trust
Fund has been extended to 2029 - 12 years longer than projected last
year – by the health care reform bill, now known as the
Patient Protection and Affordable Care Act, according to a report
made yesterday by the Trustees.
"It is clear that the Affordable Care Act is
helping to strengthen the solvency of the Medicare Trust fund and
preserve this important program that millions of Americans rely on for
their health care," said Department of Health and Human Services
Secretary Kathleen Sebelius.
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"We are committed to delivering the kinds of
reforms to help increase quality and lower costs through our new CMS
Innovation Center and quality reforms. In addition to the provisions of
the new law cited in this report that will help make Medicare stronger,
there are other important reforms going into effect that will help bring
down costs and reduce fraud and waste in the system.”
Secretary Sebelius joined Secretary of Treasury and
Managing Trustee Tim Geithner, Secretary of Labor and Trustee Hilda
Solis, and Commissioner of Social Security and Trustee Michael J. Astrue
to release the 2010 Annual Social Security and Medicare Trustees Report.
In 2009, Medicare provided health insurance
coverage to 46.3 million people, according to a statement issued by Don
Berwick, the Administrator for Medicare & Medicaid Services.
Total Medicare expenditures were $509 billion and
income was $508 billion in 2009.
The average Medicare benefit per enrollee was
$11,743.
“These Medicare expenditures were slightly lower
than estimated in last year's Trustees Report,” Berwick said.
“Within the total, Part A and Part D spending were
each slightly lower than estimated, while Part B outlays were slightly
higher. Medicare expenditures in 2009 represented 3.5 percent of Gross
Domestic Product. Last year, these costs were projected to increase
steadily (and rapidly) to over 11 percent of GDP by the end of the
long-range, 75-year projection period. In the new report, based on the
cost-containment efforts of the Affordable Care Act, Medicare is
projected to represent 6.4 percent of GDP in 2084.”
The Trustees note that the largest amount of
projected savings under the Affordable Care Act 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 percent per
year.
Other provisions in the Affordable Care Act reduce
Medicare costs through lower payments to private Medicare Advantage
health plans. The additional contribution of 0.9 percent 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.
“Our agency intends to work with providers to
support these improvements and carefully monitor the impact of this
provision on access to high quality care for all beneficiaries. Despite
the uncertanties, the picture is far more positive than last year - with
the Affordable Care Act, we can make the future of Medicare secure,”
stated Berwick.
Sec. Sebelius concluded, “As we work to secure
Medicare’s future, we are committed to honest accounting. That’s why
President Obama and I have called on Congress to pass a permanent fix to
the Sustainable Growth Rate formula for doctors so that our projections
can be based on the most accurate information.
“And it’s why I’m pleased to announce that last
month I reestablished a panel of experts that will review these reports,
with a special focus on our long-term health care spending. That panel
will hold its first meeting later this month, so that its
recommendations can be incorporated into next year’s report.
Following is the Fact Sheet on the Trustees’ report
issued by the Centers for Medicare and Medicaid Services
TRUST FUND
SECURITY
Part A
In their annual
report, the Medicare Board of Trustees today announced that the
financial outlook for both the major trust funds supporting Medicare has
been substantially improved as a result of the Patient Protection and
Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010.
The Trustees
report that Medicare’s Hospital Insurance (HI) Trust Fund is now
projected to remain solvent until 2029, 12 years longer than reported
last year. In addition, the HI long-range actuarial deficit has been
reduced to 0.66 percent of taxable payroll, which is one-sixth of its
projected amount prior to the Affordable Care Act. Although HI costs
are estimated to continue to exceed trust fund income for the next few
years, as they have since 2008, the savings under the new health reform
act are expected to result in fund surpluses during 2014-2022.
Part B
Projected costs
for the Part B account in the Supplementary Medical Insurance (SMI)
Trust Fund are also much lower as a result of the Affordable Care Act.
Part B spending
currently approximates 1.5 percent of Gross Domestic Product (GDP).
Last year’s Trustees report projected that would increase to 4.5 percent
by the end of the 75 year projection period. However, now, under current
law, it is projected to reach only 2.5 percent of GDP by the end of the
Trustees’ 75-year projection period – a substantial reduction.
Part B 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.
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 percent on Dec. 1,
2010, a further 6.5 percent on Jan. 1, 2011, and 2.9 percent on Jan. 1,
2012.
Part D
Part D, the
Medicare prescription drug program, is also in financial balance as a
result of annual updating of enrollee premiums and federal payment
rates.
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.
Sources of savings
The Trustees note
that the largest amount of projected savings under the Affordable Care
Act 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 percent per year.
Other provisions
in the Affordable Care Act reduce Medicare costs through lower payments
to private Medicare Advantage health plans. The additional contribution
of 0.9 percent 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
Affordable Care Act bring the HI trust fund much closer to financial
balance in both the short range and the long range. However, additional
policy initiatives are needed to ensure 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.
