Medicare Hospital Trust Fund To Be Insolvent by 2019, Trustees’ Report Finds
Medicare's financial condition has "deteriorated sharply" in the past year, and its hospital trust fund will be insolvent by 2019, seven years earlier than was predicted one year ago, according to the Medicare trustees' annual report for 2004, the Washington Post reports. Medicare has "never before lurched seven years closer to insolvency in one year," the Post reports (Goldstein, Washington Post, 3/24). According to the report issued Tuesday, which is based on analysis from the office of chief Medicare actuary Richard Foster, the financial deterioration of Medicare is attributable to rising health care costs, "lower-than-expected" revenue from workers' payroll taxes and changes to the program enacted in the new Medicare law, USA Today reports (Despeignes, USA Today, 3/24). The hospital trust fund has stopped running a surplus, and its payroll tax income currently meets only 98% of its expenditures. As a result, Medicare will have to begin paying for hospital expenses out of the fund itself sometime this year (Zaneski, Baltimore Sun, 3/24). Previously, trustees had predicted that would happen in 2013 (Pear, New York Times, 3/24). Until 2009, Medicare costs not covered by payroll taxes will be covered by interest on the $256 billion in Treasury bills held in the trust fund (Vieth/Kemper, Los Angeles Times, 3/24). The trustees' report also said that Medicare Part B, which pays for doctors' visits, "unexpectedly ran a $10.3 billion deficit last year and is likely to have one of $1.7 billion this year," despite a reduction in payments to doctors (Washington Post, 3/24).
The report also found that Medicare will grow "much faster than the economy as a whole," increasing from 2.6% of the gross domestic product last year to 3.7% in 2010, 7.7% in 2035 and almost 14% by 2079, according to the New York Times (New York Times, 3/24). Over the next 75 years, Medicare will have an unfunded liability of $27.7 trillion, with $8.1 trillion of additional expenses from the new prescription drug benefit. Last year, the trustees predicted a $15.5 trillion liability without the drug benefit (Washington Post, 3/24). By 2078, Medicare expenditures will represent nearly twice the cost of Social Security, according to the report (New York Times, 3/24). The report said that in order for Medicare to meet its expenses over the next 75 years, Congress would have to raise revenue by 108% or reduce benefits by 48% (Los Angeles Times, 3/24). The trustees said that Medicare's fiscal outlook could be made worse by the "unrealistic assumption" that the average Medicare fee for doctors' services will be cut by 5% each year from 2006 to 2012 under current rules (New York Times, 3/24).
According to the report, the new Medicare law accounts for about two years of the seven-year acceleration in the program's projected insolvency. Provisions that will have the greatest negative effect on the hospital trust fund are those that increase payments to private insurers to encourage their participation in Medicare and higher reimbursements for rural hospitals (Schuler, CQ Today, 3/23). The report said that, under the new law, Medicare HMOs will receive $46.3 billion through 2013, instead of the $14 billion figure that Congress used when negotiating the legislation last year (Baltimore Sun, 3/24). The prescription drug benefit did not figure into trustees' projections of the trust fund's accelerated insolvency because the benefit will not be paid out of the hospital trust fund, according to the Post (Washington Post, 3/24). Another two years of the acceleration of the trust fund's insolvency are attributable to lower payroll tax revenues and higher health care costs, while the remaining three years are attributable to "a mixture of new assumptions and a finding that patients are generally less healthy than models predicted," the Washington Times reports.
HHS Secretary Tommy Thompson, one of the trustees, said the results are "not as good as we had hoped," but he added that "progress always comes at a price" (Dinan, Washington Times, 3/24). He said the new Medicare law will "protect the quality and solvency of the Medicare system now and in the future." Thompson said that the trustees had not taken into account provisions in the law designed to save Medicare money, including new coverage for preventive care services (Washington Post, 3/24). That initiative, as well as others designed to encourage more competition among insurers and greater use of generic prescription drugs, "are going to save billions of dollars," Thompson said (USA Today, 3/24). Treasury Secretary John Snow, also a trustee, said that further savings could come through the Bush administration's proposals regarding medical malpractice reform, medical error reductions and improved efficiency through use of technology (McKinnon, Wall Street Journal, 3/24). But trustee John Palmer, former dean of the Maxwell School at Syracuse University, said that such savings proposals are "more nebulous, long-term hopes than things that can be quantified." He said, "The facts are, the new legislation has increased costs" through hospital and outpatient services and the new drug benefit "without any comparable increase in revenues" (Washington Post, 3/24). In a joint statement with fellow public trustee Thomas Saving, an economist at Texas A&M University, Palmer said that the combination of rising Medicare costs and the new drug benefit "raises serious doubt about the sustainability of Medicare under current financing arrangements" (New York Times, 3/24).
House Ways and Means Committee Chair Bill Thomas (R-Calif.) said the report "validates the reasons Republicans had in reforming Medicare and enacting a prescription drug benefit last year. The overall future health of Medicare depends on these reforms and our future action" (Washington Post, 3/24). He added that the new law calls for the White House to draft legislation to curb Medicare costs if general revenues comprise more than 45% of the program's payments (Heil/Kostelritz, CongressDaily, 3/24). Sen. John Kerry (D-Mass.), the presumptive Democratic presidential nominee, said, "For years, we have been warning that Medicare won't be there for our children's generation. Today, the Medicare trustees have reported that because of George Bush's irresponsible tax breaks for the wealthy and his giveaway to the prescription drug companies, Medicare might not even be there for our generation" (Washington Post, 3/24). Sen. Edward Kennedy (D-Mass.) said, "The Bush administration's inept management of the economy and its sweetheart deals for the pharmaceutical industry and the insurance industry ... are bringing Medicare closer to the brink" (Los Angeles Times, 3/24). Rep. Pete Stark (D-Calif.) said, "Let's give credit where credit is due -- it's all due to the Bush administration," which he said pushed through legislation that "lavishes billions of dollars on HMOs" (Wall Street Journal, 3/24). Senate Minority Leader Tom Daschle (D-S.D.) said, "I think as a result of the fraudulent way Congress was called upon to act on [the new Medicare law], and given the extraordinary consequences that this legislation has ... there ought to be a re-vote in the Congress" (Koffler, CongressDaily, 3/23). But White House spokesperson Trent Duffy said, "This president has delivered; Democrats made empty promises for more than a decade." He added that the predicted decline in Medicare's solvency is related more to rising health costs than to the Medicare legislation, according to the New York Times (New York Times, 3/24).
Uwe Reinhardt, health care economist at Princeton University, said the reaction to the report is "much ado about nothing," adding, "We've been there before many, many times. Each time the sky is falling, and it didn't fall" (Los Angeles Times, 3/24). Robert Hayes, president of the Medicare Rights Center, added, "Medicare is no closer to insolvency than the Defense Department. The only thing to fear is a president or a Congress who thinks tax cuts or other domestic priorities are more important than health care for older and disabled Americans" (Baltimore Sun, 3/24). However, Robert Reischauer, president of the Urban Institute, said the new figures represent "the largest deterioration since we began doing these projections in 1970" (New York Times, 3/24). Gail Wilensky, senior fellow at Project HOPE, said, "The bottom line is that we have a Medicare program that has not been adequately funded for a long time." Ron Pollack, executive director of Families USA, said, "There's an ideological belief in the private-plan tooth fairy. This report is confirmation that the more seniors go into private plans, the more expensive it will be for Medicare" (Baltimore Sun, 3/24). Michael Cannon of the Cato Institute said, "Medicare's bleak outlook is the unsurprising result of letting tens of millions of people spend someone else's money. The only responsible choice is to finance future Medicare obligations through reforms that encourage personal savings" (Wall Street Journal, 3/24). Marilyn Moon, health program director of the American Institutes for Research, said that she does "not see any evidence that private health plans will save money" and said that eventually Congress will have to consider additional tax revenues, according to CongressDaily (Heil/Kosterlitz, CongressDaily, 3/24). Robert Moffitt, director of health policy studies at the Heritage Foundation, said that fixing the fiscal problems of Medicare will require a "bipartisan" effort. Tricia Neuman, a Kaiser Family Foundation vice president and director of its Medicare Policy Project, said, "There's so little trust right now that it's hard to imagine a bipartisan commission on the future of Medicare" (Los Angeles Times, 3/24). Robert Helms, resident scholar and health care specialist at the American Enterprise Institute, said, "What we're seeing is a big change in the financial condition of Medicare. I hope politics don't distract people from taking a serious look at this year's report because it's quite alarming" (Baltimore Sun, 3/23). The trustees' report is available online.
Several broadcast programs reported on the Medicare trustees' report.
- ABCNews' "World News Tonight": The segment includes comments from Snow and General Accounting Office Comptroller David Walker (Douglass, "World News Tonight," ABCNews, 3/23). A video excerpt of the segment is available online in RealPlayer.
- C-SPAN's "Washington Journal": The program will include an interview with Thomas Saving, public trustee for Medicare ("Washington Journal," C-SPAN, 3/24). The complete segment will be available online in RealPlayer and Windows Media after the broadcast.
- MPR's "Marketplace": Host David Brown interviews Harvard law professor Howell Jackson (Brown, "Marketplace," MPR, 3/23). The complete segment is available online in RealPlayer.
- NPR's "Morning Edition": The segment includes comments from Snow and Thompson (Schalch, "Morning Edition," NPR, 3/24). The complete segment is available online in RealPlayer.
- PBS' "NewsHour with Jim Lehrer": The segment includes comments from former Congressional Budget Office Director Dan Crippen and Moon (Ifill, "NewsHour with Jim Lehrer," PBS, 3/23). The complete segment is available online in RealPlayer.
- PBS' "Nightly Business Report": The segment includes comments from Saving, Snow and Peter Orszag, an economist at the Brookings Institution (Gersh, "Nightly Business Report," PBS, 3/23). The complete transcript is available online.
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