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
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.
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
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
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,
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
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.
Following is the news release from the Centers
for Medicare and Medicaid Services
Trustees Report Shows Medicare Remains Viable, But
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
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 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,
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,
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,
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.
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