The financial solvency of Medicare should last until 2029 – 12 years longer than previous projections – thanks to cost-cutting measures and increased revenues included in the Affordable Care Act of 2010 (ACA), according to an annual report released Thursday by the Hospital Insurance (HI) and Supplemental Medical Insurance (SMI) boards of trustees.
The trustees note in the report that changes written into the ACA are estimated to postpone the exhaustion of HI trust fund assets from 2017 under the prior law to 2029 under current law, which represents the largest increase ever for the program.
Despite this improvement, however, the trustees report that the fund is still not adequately financed over the next 10 years. HI expenditures have exceeded income annually since 2008 and are projected to continue doing so under current law through 2013.
Sen. Max Baucus (D-Montana), chairman of the Senate Finance Committee, said that the report is good news for the sustainability of the Medicare program.
“Today, the millions of older Americans who count on Medicare for dependable access to their doctors received the great news that the new healthcare law has significantly improved the financial stability of the program. Today’s report shows that the new healthcare law has reduced the deficit in the Medicare Trust Fund by 83%,” Baucus said.
“Before healthcare reform, skyrocketing healthcare costs threatened to bankrupt the Medicare trust fund by 2017, but the new healthcare law added another 12 years to the life of the program. Today’s report makes clear that the new healthcare law succeeds in making Medicare stronger, more coordinated and more efficient, which will protect the program through 2029.”
The trustees noted that the release of the report was delayed from its normal schedule to allow incorporation of the effects of the ACA, which contains roughly 165 provisions affecting the Medicare program by reducing costs, increasing revenues, improving certain benefits, combating fraud and abuse, and initiating a major program of R&D for alternative provider payment mechanisms, healthcare delivery systems, and other changes intended to improve the quality of healthcare and/or reduce its costs to Medicare.
According to the report, 46.3 million people were covered by Medicare last year: 38.7 million aged 65 and older, and 7.6 million disabled. About 24% of beneficiaries have chosen to enroll in Part C private health plans that contract with Medicare to provide Part A and Part B health services. Total benefits paid in 2009 were $502 billion. Income was $508 billion, expenditures were $509 billion, and assets held in special issue U.S. Treasury securities were $381 billion.
“Today’s report also projects that in the future, healthcare costs will grow more slowly than they have in recent years. The skyrocketing growth of healthcare costs has put a huge strain on families, on businesses and on programs like Medicare in recent years. Provisions in the new law, like reducing unnecessary hospital readmissions and fighting Medicare fraud, help reduce current shortfalls and keep the rising cost of healthcare down in the future,” Baucus said.
The trustees reported that, beginning in 2014, trust fund surpluses are estimated to occur throughout the short-range projection period and for several years thereafter. The shortfalls projected for the next four years can be met by redeeming trust fund assets, which at the beginning of 2010 were $304 billion, but the asset balance would fall below the trustees’ recommended minimum level starting in 2012 under the intermediate assumptions. The HI trust fund has not met the trustees’ formal test of short-range financial adequacy since 2003, according to the report.
The SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to match expected costs. However, further Congressional overrides of scheduled physician fee reductions, together with an existing “hold-harmless” provision restricting premium increases for most beneficiaries, could jeopardize Part B solvency and require unusual measures to avoid asset depletion, the report says.
In particular, without legislation, Part B premiums payable in 2011 and 2012 by new enrollees, high-income enrollees, and State Medicaid programs (on behalf of low-income enrollees) will probably have to be raised significantly above normal requirements to offset the loss of revenues caused by the hold-harmless provision, raising serious equity issues.
Part B costs have been increasing rapidly, having averaged 8.3% annual growth over the last 5 years, and are likely to continue doing so. Under current law, an average annual growth rate of 4.8% is projected for the next five years. This rate is unrealistically constrained due to multiple years of physician fee reductions that would occur under current law, including a scheduled reduction of 23% for December 2010, according to the report.
If Congress continues to override these reductions, as they have for 2003 through November 2010, the Part B growth rate would instead average roughly 8%. For Part D, the average annual increase in expenditures is estimated to be 9.4% through 2019. The U.S. economy is projected to grow at an average annual rate of 5.1% during this period, significantly more slowly than Part D and the probable growth rate for Part B.
For the 75-year projection period, the HI actuarial deficit has decreased from 3.88% of taxable payroll, as shown in last year’s report, to 0.66% of taxable payroll, principally because the far-reaching effects of the ACA reduce the actuarial deficit by 3.16%. However, the trustees note, this substantial improvement depends partly on the long-range feasibility of downward adjustments to increases in payment rates for all categories of HI providers in all future years.
“While last year’s report projected Medicare spending on doctors and other services would reach more than 4% of our economy, this report projects it will now increase to only 2.5% over that same 75 year period. This savings is good news for the Medicare Trust Fund and it’s good news for seniors as well. When Medicare costs go down, seniors’ premiums go down too, and that will put tens of billions of dollars back into seniors’ pockets over the next decade,” Baucus said.
Social Security’s long-range finances are expected to improve slightly starting in 2019, according to the report, from a new tax that takes effect that year on the priciest health insurance plans, which generally go to highly paid managers and executives. The tax is expected to result in a shift of compensation for such individuals from health benefits to income, which is subject to the payroll taxes for Social Security and Medicare.
“Today’s report also includes some modest but positive news for the Social Security program. The report shows us that the imbalance in the Social Security Trust Fund shrank by four percent this year,” Baucus said. While we need to continue working to bolster Social Security and protect the program for future generations, this welcome news shows we are moving in the right direction.”
The trustees conclude that the ACA has introduced important changes to the Medicare program that are designed to reduce costs, increase revenues, expand the scope of benefits, and encourage the development of new systems of healthcare delivery that will improve health outcomes and cost efficiency.
“The financial projections in this report indicate a need for additional steps to address Medicare’s remaining financial challenges. Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be.
Moreover, the early introduction of reforms increases the time available for affected individuals and organizations – including healthcare providers, beneficiaries, and taxpayers – to adjust their expectations,” the trustees say. “We believe that prompt action is necessary to address both the exhaustion of the HI trust fund and the anticipated excess growth in HI, SMI Part B, and SMI Part D expenditures.”
Source : ahcmedia.com