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Medicare News

Gloomier-Than-Expected Forecast for Medicare: Trustees Say Out of Money in 2024

Sluggish economy hurting but health reform helping save money for critical senior citizen program - see links to other news reports, news release from CMS below story

May 16, 2011 - Medicare will start running out of money in 2024 -- five years earlier than projected last year — as a result of the sluggish economic recovery, the program’s trustees reported Friday.

The outlook for the federal health insurance program that covers 47.5 million senior citizens and disabled Americans is a dramatic shift from last summer. That's when the trustees, including Treasury Secretary Timothy Geithner and HHS Secretary Kathleen Sebelius, proudly projected that the new health law had extended the solvency of the program by 12 years from 2017 to 2029.

 

Related Archive Stories

 
 

Social Security News

Social Security Trustees Project Trust Fund Exhaustion One Year Sooner

Senior citizen advocacy groups not alarmed by 2036 deadline, see time for fix - May 15, 2011

Job of Controlling Medicare Costs Goes to Independent Payment Advisory Board

How will the IPAB change Medicare? What does this mean to senior citizens?

By Bara Vaida, Kaiser Health News
In collaboration with The Washington Post

May 9, 2011


 
 

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Medicare faces serious financial challenges over the next few decades as the aging population and rising costs push expenses higher while the employer and employee tax revenues that fund the health insurance program struggle to keep pace. Last year, the total cost of the program was $523 billion.

Swings in the predictions about the financial health of Medicare are common year to year. But the latest scorecard puts renewed pressure on the administration to find ways to improve the economy and make sure its experiments in the health law to lower health costs can actually work, said Deborah Chollet, a senior fellow with Mathematica, a nonpartisan research firm.

"The general health of the economy is crucial" to the future of the Medicare fund, she said.

Even Geithner acknowledged that the health law won’t do enough on its own to control rising health costs — a common complaint of Republicans who have been pushing for repeal of the health overhaul. "We must go beyond the Affordable Care Act and identify additional reforms," he said.

Sebelius said the a new patient safety initiative, announced recently by administration officials could save Medicare $10 billion over the next 10 years.

The trust fund covers Part A of the Medicare program, which pays for hospital costs. In 2010, payroll taxes that support the fund took in $182 billion, about $2.5 billion less than expected, and have fallen short each year since 2008.

Another factor hurting Medicare’s future solvency: The trustees estimate people who are 65 now will live 2.4 months longer than projected a year ago. While that’s good news for beneficiaries, it means higher costs for the program.

Social Security, which faces some of the same pressure, will remain solvent until 2036—one year earlier than projected last year, program trustees said.

AARP Executive Vice President John Rother said lawmakers must look at more than just Medicare to find ways to reduce health care spending. “While provisions of the Affordable Care Act are helping to control spending in Medicare, far more must be done to reduce costs throughout the health care system and extend the Medicare trust fund for [hospitals] for the long term," he said.

Some Republicans said that five fewer years of solvency for the Medicare trust fund demands that Congress take steps now to control spending. "Today's report makes it clearer than ever that doing nothing is not an option," House Ways and Means Chairman Dave Camp, R-Mich., and other panel subcommittee chairmen said in a statement. “The failure to act means current, as well as future beneficiaries, will face significant cuts even sooner than previously estimated."

But Senate Finance Committee Chairman Max Baucus, D-Mont., had a different interpretation, saying the report shows that the health law’s provisions governing Medicare are necessary. "Health reform strengthened Medicare by cutting wasteful subsidies to private insurance companies and helping doctors save money by increasing coordination, and these improvements extended the life of the program by more than a decade," Baucus said.

The report's findings come as the parties are debating what role Medicare spending should play in reducing the federal deficit.

In last fall’s campaigns, Republicans accused Democrats of stripping hundreds of billions of dollars from the program to fund the health law’s subsidies for insurance coverage and Medicaid expansion. President Barack Obama and Democrats returned the favor last month when House Budget Committee Chairman Paul Ryan, R-Wis., unveiled his plan to reduce the federal deficit, in part by converting Medicare to a "premium support" program where the government would pay a set amount per beneficiary.

Obama and Democrats, citing an analysis from the nonpartisan Congressional Budget Office, said the Ryan plan would force seniors to pay more for their medical care. Last week, House Republican leaders backed away, suggesting sweeping changes like the Ryan proposal won’t become law this year. This week the message shifted again, with House Speaker John Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky., insisting that Medicare changes must be part of the negotiations over raising the federal debt ceiling.

Separately, the administration has also released a state-by-state analysis about how the health law is benefitting Medicare recipients. Health care providers who took payment cuts in the law in exchange for new customers are sure to rebel against further reductions.

And with the 2012 elections just 18 months away, Democrats and Republicans may be reluctant to strike a deal on Medicare, preferring instead to make each party’s plans for the program a central focus of campaigns where control of the White House and Congress are at stake, pointing to 2013 as the year for a deficit deal.

By Phil Galewitz And Mary Agnes Carey, Staff Writers, Kaiser Health News (May 13, 2011)


Following is the news release from the Centers for Medicare and Medicaid Services

Trustees Report Shows Medicare Remains Viable, But Challenges Remain

The Medicare Trustees Report released today (Friday, May 13, 2011) shows that while Medicare remains solvent longer than expected prior to passage of the Affordable Care Act, challenges remain for securing the long term financial health of the Medicare program. Expenditures for the Supplementary Medical Insurance (SMI) Trust Fund were lower than expected this year. The Trustees annual report says that Medicare’s Hospital Insurance (HI) Trust Fund is now projected to remain solvent until 2024.

Without the reforms in the Affordable Care Act, the Medicare HI Trust Fund would expire in just five years – in 2016. The report issued today shows these reforms added eight years of solvency.

“This report shows that without the Affordable Care Act, the outlook for the Hospital Insurance Trust Fund today would be much worse, said Donald Berwick, M.D., Administrator of the Centers for Medicare & Medicaid Services.

“CMS is implementing critical reforms to improve care and reduce costs and improve the overall health of Medicare’s beneficiaries and the Trust Fund.”

Actual Part B expenditure growth in 2010 was lower than expected. Part B is funded by a combination of beneficiary premiums and general revenue financing.

Part D, the Medicare prescription drug program, is also in financial balance as a result of annual updating of enrollee premiums and benefit payments. Projected expenditures are slightly lower overall than in last year’s report, reflecting lower-than-expected costs in 2009 and 2010 together with a reduction in the projected growth in prescription drug spending in the U.S. for the next 10 years.

HI Trust Fund expenditures have exceeded income annually since 2008 and are projected to continue doing so under current law in all future years. Interest earnings and asset redemptions are required to cover the difference. HI Trust Fund assets are projected to cover annual deficits through 2023, with asset depletion beginning in 2024.

The five year change from the 2010 trustee report was due to a slowdown in the national economy, which resulted in a decline in tax revenues and higher real projected expenditures. This is not the first time that the HI Trust Fund expiration date has been affected by a decline in anticipated revenues. In 2004, for example, the Trust Fund exhaustion date moved up by 7 years, in large part because payroll tax revenues in 2003 were lower than had been anticipated.

The projections in this year’s report demonstrate the importance of the Affordable Care Act as a tool to improve the outlook for the HI Trust Fund but also point to a need to continue serious discussions about driving care improvements that also address underlying cost drivers in the Medicare program.

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. The two public representatives appointed by the President and confirmed by the Senate, are Charles P. Blahous III and Robert D. Reischauer began serving on September 17, 2010. CMS Administrator Berwick is designated as Secretary of the Board.

The full report is available at: http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2011.pdf


Following are links to other news reports

Reports from May 14-16, 2011

The Associated Press: Trustees: Worsening Picture For Benefit Programs
The government says that a bad economy has shortened the life of the trust funds that support the nation's two biggest benefit programs. The annual checkup said that the Medicare hospital insurance fund will now be exhausted in 2024, five years earlier than last year's estimate. The new report says that the Social Security trust fund will be exhausted in 2036, one year earlier than before (Ohlemacher, 5/13).

The Wall Street Journal: Medicare Stirs Fray Over Debt
Both sides seized on the projections issued Friday by the trustees of the Social Security and Medicare trust funds to push for changing the programs, which are among the biggest drivers of projected budget deficits. However, Democrats and Republicans are far apart on what steps to take and how soon to act.

"The trustees' report makes it clear that if we do nothing, Medicare will not be able to pay promised benefits to American seniors—and sooner than we thought," said House Speaker John Boehner (R., Ohio) in a statement. "With tens of millions of baby boomers beginning to retire, this is the moment to act." Treasury Secretary Timothy Geithner said the report showed "Social Security and Medicare benefits are secure today, but reform will be needed so that they will be there for current and future retirees" (Paletta, 5/14).

The New York Times: Slow Recovery Worsens Financial State Of Medicare
The Medicare report included a disclaimer by the chief Medicare actuary, Richard S. Foster. "The financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations” in the short term or the long range, said Mr. Foster, a civil servant whose independence is protected by law. The projections assume that Medicare will cut doctors' fees by 29 percent on Jan. 1, as required under current law, but Congress routinely intercedes to block such cuts. Moreover, the report says that projected Medicare costs over 75 years are about 25 percent lower because of the new health care law. (Pear, 5/13).

The Washington Post: Medicare Funds Will Be Depleted In 13 Years, Report Says
[A]fter the Medicare fund that covers hospital care for the elderly is exhausted, incoming revenue from Medicare taxes will initially be enough to cover 90 percent of annual expenses. That share will decline to about 75 percent by mid-century, then rise to 88 percent by 2085. This year also marks the first time that both programs are paying out more in benefits than they collect in revenue, requiring other government funds to make up the difference and adding to budget deficits (Aizenman, 5/13).

The Los Angeles Times: Medicare Could Run Out Of Money Sooner Than Previously Predicted
The new healthcare law includes a series of cuts to hospitals and other medical providers designed to spur increased efficiency. The law will also penalize hospitals where patients acquire dangerous conditions, such as infections, and reward doctors that better manage their patients' care. The trustees' report suggested that these efforts would slow the growth of Medicare costs by 25% over the next 75 years. But there is widespread recognition that this is not enough (Levey, 5/14).

Politico: Medicare To Run Out Of Money Five Years Sooner, Trustees Say
(Last year,) the trustees predicted the cost savings and tax increases in the Affordable Care Act would extend the life of the Medicare trust fund for 12 years. At that time, it was expected to run out of money in 2029, rather than 2017. That was a controversial conclusion… (Nather, 5/13).

USA Today: Medicare, Social Security Running Out Of Money Faster
The government programs' trustees issued their gloomy findings today amid a rancorous debate in Washington over the future of the New Deal and Great Society programs, which eat up huge and growing shares of the federal budget. (Wolf, 5/13).

MarketWatch: Medicare, Social Security Finance Outlook Worsens
Upon exhaustion [of Medicare's trust fund], dedicated revenue will be able to pay 90% of costs for the hospital-insurance program. (Mantell, 5/13).

Reuters: Medicare Funds Issue Fuels Budget Fight
The latest projections struck in the middle of an intense debate between the Obama administration and opposition Republicans about how to rein in the nation's runaway debt, set to hit the legal limit of $14.3 trillion on Monday. Republicans have been pushing for much deeper spending cuts than the administration prefers as a price for agreeing to raise the debt limit. (Somerville and da Costa, 5/13).

CNN Money: Social Security And Medicare To Run Short Sooner Than Expected
Combined, the cost of the programs represented 8.4% of the size of the nation's economy last year -- a figure that would jump to 11.8% by 2035. The reason: The number of beneficiaries will explode as more Baby Boomers retire and lower birth rates will slow growth in the number of workers paying into the system (Sahadi, 5/13).

The Fiscal Times: Trustees Puts Health Care Safety Net on Critical List
It is commonplace for politicians to suggest dramatic changes are needed in Social Security and Medicare or the programs won't exist "for our children and grandchildren." The annual trustees report for those two programs released on Friday reveals a future in which benefits are reduced, not eliminated. ... (Goozner, 5/13).

PBS NewsHour: Medicare, Social Security May Exhaust Funds Sooner Than Expected
Given the continuing battle playing out debts, deficits and entitlement spending, Treasury Secretary Timothy Geithner, who is chairman of the trustee's panel, told reporters Friday that the new projections demonstrate "the need to act sooner rather than later to make reforms to our entitlement programs."

"We should not wait for the trust funds to be exhausted," he said, "to protect our current and future retirees." Social Security's trust fund will be exhausted in 2036, one year earlier than estimated. But administration officials were quick to point out that the program will still pay benefits then — but not the full amount that retirees expect. "Exhaustion in 2036 means that we'll have money to pay a little more than three-quarters of the benefit," said Michael Astrue, commissioner of the Social Security Administration (Bowser, 5/13).

National Journal: Trustees: Medicare To Go Broke In 2024
Medicare's hospital insurance trust fund will become insolvent in 2024, five years sooner than previously estimated, largely due to the sluggish economy, the Social Security and Medicare Trustees report. Medicare costs will continue to grow substantially, from a 3.6 percent share of the economy in 2010 to 5.5 percent by 2035, the trustees project in their annual report. (DoBias, 5/14).

Most of this information is reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery. © Henry J. Kaiser Family Foundation. All rights reserved.

 

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