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Trustees Report 2004
Medicare Broke by 2019, Seven Years Earlier than Predicted
March 23, 2004 - The
Medicare Trustees Report issued today states that Medicare's
Hospital Insurance (HI) Trust Fund is projected to be exhausted in 2019,
seven years earlier than projected in last year's report.
The Medicare trustees report cites several factors for its new
projection, including: higher spending and lower tax revenues than
expected in
2003 (accounts for two years), associated assumption
adjustments (1.5 years), improved data on the health status of
beneficiaries in health plans (1 year), and model refinements for
estimating certain hospital payments (0.5 years).
The new Medicare
Modernization Act accounts for only two years of the seven-year
difference in solvency dates. "Yet the new law includes many
important reforms that will enable Medicare to take even further
steps to improve its financial outlook. In addition, outside of
Medicare, the administration has developed several initiatives to
improve health care quality and stem the rising costs of health
care," according to the news release by HHS Secretary Tommy G.
Thompson.
This underscores the need for
America to remain on the path of strengthening and reforming the
Medicare program, as well as the overall health care system, so
Medicare can continue providing future generations of Americans with
the benefits of modern medicine in a cost-effective manner. Medicare
is providing seniors with more access to the benefits of modern
medicine than any time in its history, while also incorporating
essential new reforms that will give Medicare more tools to take
further steps to keep the program secure, according to Thompson.
"The reforms built into the new Medicare law often get
overshadowed by the new prescription drug benefits, but these
reforms provide more tools to use to improve the solvency of the
program," Secretary Thompson said. "Medicare provides America's
seniors and persons with disabilities with access to the highest
quality health care, and we made the program even better by adding
coverage for prescription drugs and more preventive care. We must
continue building on the reforms we added to Medicare."
The new reforms and new tools to Medicare that will help address
its financial condition include:
-- New fiscal safeguards that provide a better measure of
Medicare solvency and trigger action by the President and Congress
to keep the program solvent.
-- Private plan competition and choice.
-- More preventive care to improve senior's health and help them
avoid costly hospital stays or the expense of treating worsening
conditions.
-- Disease management programs to lower the costs of chronic
illnesses.
-- E-prescribing to reduce costs, including the costs of medical
errors.
--Reductions in fraud and abuse to save $35 billion. This
includes addressing the overpayment for "Part B" drugs covered by
Medicare and implementing competitive bidding for certain Medicare
services.
-- Provisions to bring lower-cost generic drugs to the market
sooner
-- Health savings accounts to encourage savings to help pay for
medical expenses.
Other provisions in MMA to help contain the rate of growth in
Medicare spending include steps to reduce costs, such as reforming
Medicare contracting processes and requiring Medicare beneficiaries
with high incomes to pay for a larger portion of their Medicare Part
B coverage. The provisions also include better information on the
quality and effectiveness of Medicare services, and new evaluations
of innovative approaches to providing care for seniors and persons
with disabilities.
Secretary Thompson said the administration also is taking
innovative steps to stem the rising cost of health care in general.
These efforts, which he said would benefit both the overall health
care system as well as the Medicare system, include:
-- Medical liability reform. This is critical to reducing the
costs of health care and improving the quality of care.
-- Modern technology. Efforts to improve technology and integrate
new technology into the health care system will help lower costs by
reducing medical errors and improving the efficiency of health care
delivery. HHS has been at the forefront of this endeavor through
various initiatives, such as creating incentives for bar-coding
systems in hospitals. These initiatives will make it possible to
implement e-prescribing and better quality information.
-- Making health care more affordable. The president has proposed
refundable tax credits to help low-income workers purchase health
insurance coverage, and he proposed allowing small businesses to
band together through association health plans. These initiatives
would help America's working families have greater access to
affordable health insurance.
More Details of the Trustees Report
The Trustees Report includes new, overall measures of Medicare's
expected costs and program revenues that make clear that funding for
Medicare outside of the HI Trust Fund will be increasingly important
for the program. As a result of the new law, the Supplementary
Medical Insurance (SMI) component of Medicare is now composed of two
parts, Part B and Part D, each with its own separate account within
the SMI trust fund.
The Part D account of the SMI trust fund was established in 2004
by the MMA to fund the Medicare prescription drug benefit. These
benefits will increase the total cost of Medicare by an estimated
one-fourth when they begin in 2006, and are projected to grow more
rapidly than Part B costs.
Financial Trigger
Title VIII of the MMA will require the Medicare Trustees' annual
report on the financial solvency of Medicare to include a new
section monitoring the rate of Medicare spending growth and the use
of general revenues.
If general revenues are projected to finance more than 45 percent
of total Medicare spending for two consecutive years as captured in
the Trustees' reports, the President would be required to submit a
legislative proposal to address the problem. This legislative
proposal would be given special fast-track consideration in the
Congress under the new law.
This new monitoring procedure will alert HHS and the Congress to
the rapidly increasing health care costs in Medicare. This will
allow both the Administration and the Congress to develop new
legislation to effect necessary changes to the program to ensure
that spending is controlled Hospital Insurance Trust Fund (HI)
The trustees estimate that the Hospital Insurance Trust Fund will
remain solvent until the year 2019, based on the most probable
economic and demographic assumptions. This projected date represents
a seven-year loss for estimated Part A solvency, from the forecast
of 2026 made by the trustees last year.
Supplementary Medical Insurance Trust Fund (SMI)
As in previous years, the trustees find that the Supplementary
Medical Insurance Trust Fund (covering Part B and Part D of
Medicare) remains adequately financed into the futurebut only
because of its financing structure. The financing mechanism for both
parts requires general revenues and beneficiary premiums to be
adjusted automatically each year, thereby providing guaranteed
funding.
Part B spending is experiencing rapid growthover 10 percent in
each of the last 4 yearswith costs expected to nearly double over
the next 10 years and to accelerate further as the first members of
the baby boom generation enter the program in about 2010.
The Part B account ran a deficit of $10.3 billion in 2003,
because the beneficiary premiums and general revenue financing were
set before the Consolidated Appropriations Resolution of 2003 was
enacted, raising Medicare physician payments significantly and
increasing Part B costs over the scheduled financing. In 2004, the
Part B account is again expected to run a deficit (of $1.7 billion)
because the beneficiary premiums and general revenue financing were
set before the MMA was enacted, further increasing Part B costs. As
a result, premiums and general revenues in 2005 and later will have
to be adjusted upward significantly to match the higher level of
costs.
The Part D account within the SMI trust fund was established by
the MMA. For 2004 and 2005, the Transitional Assistance Account will
cover the transitional assistance to low-income beneficiaries
required as part of the Medicare-approved Prescription Drug Discount
Card Program. Beginning in 2006, beneficiaries can obtain the new
prescription drug benefit by voluntarily purchasing insurance
policies from stand-alone companies or through private Medicare
Advantage health plans. The premiums established by these plans will
be heavily subsidized by Medicare. In addition, Medicare will pay
some or all of the remaining beneficiary drug premiums and
cost-sharing liabilities for low-income beneficiaries. Medicare will
also pay special subsidies on behalf of beneficiaries retaining
primary drug coverage through qualifying employer-sponsored retiree
health plans. These benefits are expected to grow more rapidly than
Part A or Part B costs, consistent with historical growth patterns.
Rising SMI costs have a direct impact on beneficiaries and
society at large. Over time, the Part B and Part D premiums and
coinsurance amounts paid by beneficiaries would typically represent
a growing share of their total Social Security and other income. In
addition, SMI general revenue financing is expected to grow as a
share of total income taxes.
Medicare Overall
The new overall measures of Medicare's financial outlook show
that taken together, total costs for HI Part A and SMI Parts B and D
are projected to increase substantially over the next 75 years
growing from 2.6 percent of gross domestic product (GDP) today to
13.8 percent by 2078. The level of Medicare expenditures is expected
to exceed that for Social Security in 2024 and, by 2078, to
represent almost twice the cost of Social Security. At the same
time, total Medicare revenues will also increase substantially from
2.6 percent of GDP today to 9.8 percent in 2078, with 6.2 percent of
that 9.8 percent directed to Medicare from General Revenues. In
addition, in 2078, the gap between Medicare revenue and Medicare
spending for Part A would be the equivalent of 4 percent of gross
domestic product. This difference is attributable to the projected
imbalance in the HI trust fund.
"The projections shown in this report continue to demonstrate the
need for timely and effective action to address Medicare's financial
challengesboth the long-range financial imbalance facing the HI
trust fund and the continuing problem of rapid growth in both HI and
SMI expenditures," the report said.
The Medicare trustees are Treasury Secretary and Managing Trustee
John W. Snow, Secretary of Health and Human Services Tommy G.
Thompson, Labor Secretary Elaine L. Chao and Social Security
Commissioner Jo Anne B. Barnhart. Two other members, the public
trustees, are appointed by the President with Senate confirmation.
The public trustees are John Palmer and Thomas Saving. They serve
four-year terms and represent the general public. Dennis Smith,
acting administrator of the Centers for Medicare & Medicaid
Services, serves as secretary to the Board of Trustees.
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