WASHINGTON – A new Medicare Trustees Report has projected that Medicare's Hospital Insurance Fund will run out of money in 2024, five years earlier than projected in last year's report.
The reasons for moving the target date from 2029 to 2024, trustees said, are the continuing weakness in the employment market, which resulted in less income from payroll deductions used to fund the program, and a steady increase in healthcare costs.
But the report also noted a great deal of uncertainty in the projections due to the complexity of the healthcare system, how medical costs will be affected by the Affordable Care Act and whether reform can achieve its ambitious targeted cost reductions in Medicare. Further, the report is required to make its projections based on current law, which includes a 30 percent payment cut for physician service fees for Medicare scheduled to take effect in 2012 "despite the virtual certainty that Congress will override this reduction."
"In view of (these) factors, it is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report," the report noted.
President Barack Obama's administration and most Democrats in Washington praised the report, noting reports pre-dating ACA had predicted the trust fund would run dry as early as 2016.
"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, MD, 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."
The latest report comes as Congress battles over how to fund Medicare in the future without dragging the country deeper into debt. While there is agreement on both sides of the aisle that something must be done soon to address Medicare's long-term solvency, there is little common ground.
"For decades, politicians in Washington, D.C. have looked up at the size and scale of the fiscal challenges facing our country, particularly in Medicare, and chosen to kick the can down the road. Today's trustees report is another reminder that we've run out of road," said House Speaker John Boehner (R-Ohio). "We've outlined a proposal that would mean no changes for anyone age 55 and up, while making reforms to ensure that Medicare is around when younger Americans and future generations are ready to retire. The biggest threat Medicare faces right now is the status quo."
But the Republican plan as outlined by Rep. Paul Ryan (R-Wis.) in his budget proposal stands little chance of being more than a point from which Republicans can negotiate. The proposal to revamp the method of funding Medicare to insurance premium subsidies has been harshly criticized by Democrats as nothing more than a scheme that shifts significant costs of Medicare to the seniors it's meant to serve. Instead, many Democrats support action that would further leverage the savings for Medicare as outlined in the ACA.
"Clearly, the ACA extended the solvency of Medicare. It also laid the foundation for system-wide savings and quality improvement through reforms to our delivery system," said Sen. Sheldon Whitehouse (D-R.I.). "We should build upon that foundation by implementing those delivery system reforms that reward quality, promote prevention, simplify administrative processes, realign payment systems and encourage information technology."
If Democrats and Republicans are looking for a good reason to get serious about Medicare reform, they need look no further than comments at the end of the Trustees Report submitted by Robert Foster, Medicare's chief actuary.
"The financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable)," Foster noted.
Hopes for a significant bipartisan effort for a long-term solution to fixing Medicare, Social Security and the mounting federal deficit took a significant hit in mid-May when Sen. Tom Coburn (R-Okla.) abruptly left the "Gang of Six," a group of six Republican and Democratic senators who had been working on long-term entitlement and budget reform.
Attention now turns to a similar bipartisan group headed by Vice President Joe Biden that has been working toward a compromise on raising the federal debt ceiling, though it's more likely this group will agree on short-term fixes only and not the long-term structural changes needed to keep Medicare solvent.