California Healthline Daily Edition

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Medicare Hospital Trust Fund Still Expected To Be Insolvent in 2024

Medicare's hospital insurance trust fund is expected to become insolvent in 2024, a projection unchanged from last year, according to a according to a report released Monday by the board of trustees for Medicare and Social Security, AP/Washington Post reports (AP/Washington Post, 4/23).

Report Details

Last year, the board also predicted that the fund would become insolvent in 2024, five years ahead of its 2010 prediction of 2029 (California Healthline, 5/16/2011).

According to the report, Medicare's hospital insurance has been paying out more than it has received since 2008. In 2011 alone, Medicare used $27.7 billion in trust fund assets to cover hospital insurance expenses (Trustees' report, 4/23).

The report predicted that over the next 10 years the fund's expenditures would grow by an annual average of 5.3% and that its income would grow by 6% on average. However, the trustees said that the fund is expected to have only enough revenue by 2024 to pay 87% of projected costs that year.

According to Modern Healthcare, the insolvency date remained at 2024 despite growing Medicare costs because of a 2% cut in provider payments that began in January. The report said the solvency date would have accelerated without the cutback, which was part of a deficit reduction deal reached last summer (Daly, Modern Healthcare, 4/23).

In addition, a senior government official said the insolvency date remained stable because hospital expenditures were lower than anticipated in 2011, with fewer inpatient admissions and less costly admissions. Although the cause of the less-expensive care is unclear, the official said more patients might have received care in outpatient settings (Walker, MedPage Today, 4/23).

The report notes that Medicare's hospital insurance trust fund has failed to meet the trustees' formal test of short-range financial adequacy every year since 2003 (Trustees' report, 4/23).

Supplementary Medical Insurance Trust Fund Balanced

Meanwhile, the trustees found that Medicare's supplementary medical insurance trust fund is balanced and that general revenue is expected to cover the program's costs (CMS release, 4/23). SMI pays for outpatient physicians and other outpatient services -- Medicare's Part B -- and the program's prescription drug benefit, known as Part D.

However, expenses for Part B likely will be higher than the report predicts because the report factors in a more than 30% cut to physician reimbursement rates scheduled for 2013 under the sustainable growth rate formula. Congress since 2002 has passed a series of so-called "doc fixes" to offset the cuts scheduled under the SGR and is expected to continue to do so (MedPage Today, 4/23).

Report Highlights Need for Reform

Treasury Secretary Tim Geithner -- who serves as the managing trustee -- said the report shows a need for significant change to Medicare, The Hill's "Healthwatch" reports.

However, he said, "We will not support proposals that sow the seeds of their destruction in the name of reform, or that shift the cost of health care to seniors in order to sustain tax cuts for the most fortunate Americans" (Baker, "Healthwatch," The Hill, 4/23).

Democrats, Republicans Say Findings Support Their Policies

On Monday, both Democrats and Republicans said the trustees' report supports their policies on entitlement spending, CQ Today reports (Harrison, CQ Today, 4/23).

Democrats said the report confirms that the federal health reform law has slowed Medicare spending and extended the program's solvency (Sanger-Katz/McCarthy, National Journal, 4/23).

Rep. Sander Levin (D-Mich.) said the report indicates that the health reform law's provisions could produce even greater savings. Levin called on Republicans to "stop their efforts to end the Medicare guarantee, which would only place enormous additional costs on the backs of seniors and send our nation's health care costs dramatically higher" (Norman, CQ HealthBeat, 4/23).

Meanwhile, Republicans said the report indicates the need for immediate entitlement reform (CQ Today, 4/23).

Sen. Orrin Hatch (R-Utah), ranking member of the Finance Committee, said that allowing Medicare spending to continue to grow "is no longer an option." He called on President Obama to stop "pushing politically motivated policies" and "step up to the plate and lead" to find a way to fix the program (CQ HealthBeat, 4/23).

Report Makes Uncertain Assumptions, Experts Say

Some experts and officials questioned the report, saying it is based on a number of financial and political assumptions that could prove unrealistic, Reuters reports (Morgan, Reuters, 4/23).

The trustees are required to base their projections of Medicare costs on current law, according to the Wall Street Journal's "Washington Wire." For example, the report assumes that a scheduled 31% pay cut to physicians will take place in 2013. However, it "is a virtual certainty that lawmakers" will override the cut, the report noted (Radnofsky, "Washington Wire," Wall Street Journal, 4/23).

The report also assumes that the deficit-reduction agreement to reduce Medicare spending by 2% annually will hold over the next 10 years and that the Supreme Court will uphold the health reform law, both of which could prove untrue (Reuters, 4/23).

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