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From Health Law Daily, July 23, 2015

Medicare trustees’ annual examination reveals serious financial strain

By Bryant Storm, J.D.

Substantial future financial shortfalls threaten the Medicare program, according to the 2015 Annual Report of the Boards of Trustees of the Federal Hospital Insurance (HI) Trust Fund and the Federal Supplementary Medical Insurance (SMI) Trust Fund. The report, which serves as an annual financial and actuarial update on the status of the Medicare program, acknowledged positive program developments stemming from the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and the repeal of the sustainable growth rate (SGR). However, the trustees expressed that the program faces financial hardships—including the projected depletion of the Medicare Hospital Insurance (Part A) trust fund by 2030, which “need to be addressed with further legislation” (Medicare Annual Trustees Report, July 22, 2015).

Uncertainty. Although the report acknowledges that the U.S. national health expenditure growth has slowed relative to historical patterns, the board of trustees indicates that the true cause of the slowed growth is unknown. Pointing to the economic downturn and health care reform as potential causes, the report indicates that recent policy changes brought on by legislation have introduced uncertainty regarding long-term projection of the Medicare program.

Projections. The report points to a more negative reality surrounding alternative projections which estimate the cost of Medicare reaching as high as 9.1 percent of the Gross Domestic Product (GDP) by 2089. However, if the cost-saving measures developed by the ACA and Medicare Access and CHIP Reauthorization Act (MACRA) (P.L. 114-10) (the law that repealed the SGR) are adhered to, the report estimates that Medicare costs will reach 6 percent of GDP by 2089. The board estimates that the rise in Medicare spending will be a result of the fact that Medicare expenditures will increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall.

Status. In 2014, the Medicare program covered 53.8 million people, with 44.9 million beneficiaries aged 65 and older and 8.9 million disabled beneficiaries. The report indicates that around 30 percent of Medicare beneficiaries elected to enroll in a Part C private health plan which contracts with Medicare to provide their Part A and Part B services. In 2014, total expenditures reached $613.3 billion and total income total income was $599.3 billion. The estimate depletion date for the HI trust fund, which covers Part A, is 2030, due to inadequate financing. The SMI trust fund, which covers Part B and Part D, is estimated to be “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 cover expected costs and ensure a reserve for Part B contingencies.”

Reform. As a result of the future financial strain projected by the report, the board encourages the adoption of further reforms. Because program changes can be costly and difficult for providers and organizations to adopt, the report suggests that the sooner reforms are adopted the more flexible they can be due to the increased availability of time for health care providers, beneficiaries, and taxpayers to adjust their behaviors and expectations. The report encourages Congress and the executive branch to work together to develop reforms. The board warns that reforms are imperative to address the depletion of the Medicare trust fund and to ensure continued access to Medicare participating physicians over the long term.

MainStory: TopStory CMSNews HealthReformNews ProgramIntegrityNews PartANews PartBNews PartCNews PartDNews

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