Medicare
broke by 2019,
seven years earlier than predicted
March
23, 2004 - The Medicare Trustees Report issued today states that
Medicare's Hospital Insurance (HI) Trust Fund is projected to be exhausted
in 2019, seven years earlier than projected in last year's report.
The
Medicare trustees report cites several factors for its new projection,
including: higher spending and lower tax revenues than expected in 2003
(accounts for two years), associated assumption adjustments (1.5 years),
improved data on the health status of beneficiaries in health plans (1
year), and model refinements for estimating certain hospital payments (0.5
years).
The
new Medicare Modernization Act accounts for only two years of the
seven-year difference in solvency dates. "Yet the new law includes
many important reforms that will enable Medicare to take even further
steps to improve its financial outlook. In addition, outside of Medicare,
the administration has developed several initiatives to improve health
care quality and stem the rising costs of health care," according to
the news release by HHS Secretary Tommy G. Thompson.
This
underscores the need for America to remain on the path of strengthening
and reforming the Medicare program, as well as the overall health care
system, so Medicare can continue providing future generations of Americans
with the benefits of modern medicine in a cost-effective manner. Medicare
is providing seniors with more access to the benefits of modern medicine
than any time in its history, while also incorporating essential new
reforms that will give Medicare more tools to take further steps to keep
the program secure, according to Thompson.
"The
reforms built into the new Medicare law often get overshadowed by the new
prescription drug benefits, but these reforms provide more tools to use to
improve the solvency of the program," Secretary Thompson said.
"Medicare provides America's seniors and persons with disabilities
with access to the highest quality health care, and we made the program
even better by adding coverage for prescription drugs and more preventive
care. We must continue building on the reforms we added to Medicare."
The
new reforms and new tools to Medicare that will help address its financial
condition include:
-- New
fiscal safeguards that provide a better measure of Medicare solvency and
trigger action by the President and Congress to keep the program solvent.
--
Private plan competition and choice.
--
More preventive care to improve senior's health and help them avoid costly
hospital stays or the expense of treating worsening conditions.
--
Disease management programs to lower the costs of chronic illnesses.
--
E-prescribing to reduce costs, including the costs of medical errors.
--Reductions
in fraud and abuse to save $35 billion. This includes addressing the
overpayment for "Part B" drugs covered by Medicare and
implementing competitive bidding for certain Medicare services.
--
Provisions to bring lower-cost generic drugs to the market sooner
--
Health savings accounts to encourage savings to help pay for medical
expenses.
Other
provisions in MMA to help contain the rate of growth in Medicare spending
include steps to reduce costs, such as reforming Medicare contracting
processes and requiring Medicare beneficiaries with high incomes to pay
for a larger portion of their Medicare Part B coverage. The provisions
also include better information on the quality and effectiveness of
Medicare services, and new evaluations of innovative approaches to
providing care for seniors and persons with disabilities.
Secretary
Thompson said the administration also is taking innovative steps to stem
the rising cost of health care in general. These efforts, which he said
would benefit both the overall health care system as well as the Medicare
system, include:
--
Medical liability reform. This is critical to reducing the costs of health
care and improving the quality of care.
--
Modern technology. Efforts to improve technology and integrate new
technology into the health care system will help lower costs by reducing
medical errors and improving the efficiency of health care delivery. HHS
has been at the forefront of this endeavor through various initiatives,
such as creating incentives for bar-coding systems in hospitals. These
initiatives will make it possible to implement e-prescribing and better
quality information.
--
Making health care more affordable. The president has proposed refundable
tax credits to help low-income workers purchase health insurance coverage,
and he proposed allowing small businesses to band together through
association health plans. These initiatives would help America's working
families have greater access to affordable health insurance.
More
Details of the Trustees Report
The
Trustees Report includes new, overall measures of Medicare's expected
costs and program revenues that make clear that funding for Medicare
outside of the HI Trust Fund will be increasingly important for the
program. As a result of the new law, the Supplementary Medical Insurance (SMI)
component of Medicare is now composed of two parts, Part B and Part D,
each with its own separate account within the SMI trust fund.
The
Part D account of the SMI trust fund was established in 2004 by the MMA to
fund the Medicare prescription drug benefit. These benefits will increase
the total cost of Medicare by an estimated one-fourth when they begin in
2006, and are projected to grow more rapidly than Part B costs.
Financial
Trigger
Title
VIII of the MMA will require the Medicare Trustees' annual report on the
financial solvency of Medicare to include a new section monitoring the
rate of Medicare spending growth and the use of general revenues.
If
general revenues are projected to finance more than 45 percent of total
Medicare spending for two consecutive years as captured in the Trustees'
reports, the President would be required to submit a legislative proposal
to address the problem. This legislative proposal would be given special
fast-track consideration in the Congress under the new law.
This
new monitoring procedure will alert HHS and the Congress to the rapidly
increasing health care costs in Medicare. This will allow both the
Administration and the Congress to develop new legislation to effect
necessary changes to the program to ensure that spending is controlled
Hospital Insurance Trust Fund (HI)
The
trustees estimate that the Hospital Insurance Trust Fund will remain
solvent until the year 2019, based on the most probable economic and
demographic assumptions. This projected date represents a seven-year loss
for estimated Part A solvency, from the forecast of 2026 made by the
trustees last year.
Supplementary
Medical Insurance Trust Fund (SMI)
As in
previous years, the trustees find that the Supplementary Medical Insurance
Trust Fund (covering Part B and Part D of Medicare) remains adequately
financed into the futurebut only because of its financing structure. The
financing mechanism for both parts requires general revenues and
beneficiary premiums to be adjusted automatically each year, thereby
providing guaranteed funding.
Part B
spending is experiencing rapid growthover 10 percent in each of the last 4
yearswith costs expected to nearly double over the next 10 years and to
accelerate further as the first members of the baby boom generation enter
the program in about 2010.
The
Part B account ran a deficit of $10.3 billion in 2003, because the
beneficiary premiums and general revenue financing were set before the
Consolidated Appropriations Resolution of 2003 was enacted, raising
Medicare physician payments significantly and increasing Part B costs over
the scheduled financing. In 2004, the Part B account is again expected to
run a deficit (of $1.7 billion) because the beneficiary premiums and
general revenue financing were set before the MMA was enacted, further
increasing Part B costs. As a result, premiums and general revenues in
2005 and later will have to be adjusted upward significantly to match the
higher level of costs.
The
Part D account within the SMI trust fund was established by the MMA. For
2004 and 2005, the Transitional Assistance Account will cover the
transitional assistance to low-income beneficiaries required as part of
the Medicare-approved Prescription Drug Discount Card Program. Beginning
in 2006, beneficiaries can obtain the new prescription drug benefit by
voluntarily purchasing insurance policies from stand-alone companies or
through private Medicare Advantage health plans. The premiums established
by these plans will be heavily subsidized by Medicare. In addition,
Medicare will pay some or all of the remaining beneficiary drug premiums
and cost-sharing liabilities for low-income beneficiaries. Medicare will
also pay special subsidies on behalf of beneficiaries retaining primary
drug coverage through qualifying employer-sponsored retiree health plans.
These benefits are expected to grow more rapidly than Part A or Part B
costs, consistent with historical growth patterns.
Rising
SMI costs have a direct impact on beneficiaries and society at large. Over
time, the Part B and Part D premiums and coinsurance amounts paid by
beneficiaries would typically represent a growing share of their total
Social Security and other income. In addition, SMI general revenue
financing is expected to grow as a share of total income taxes.
Medicare
Overall
The
new overall measures of Medicare's financial outlook show that taken
together, total costs for HI Part A and SMI Parts B and D are projected to
increase substantially over the next 75 years growing from 2.6 percent of
gross domestic product (GDP) today to 13.8 percent by 2078. The level of
Medicare expenditures is expected to exceed that for Social Security in
2024 and, by 2078, to represent almost twice the cost of Social Security.
At the same time, total Medicare revenues will also increase substantially
from 2.6 percent of GDP today to 9.8 percent in 2078, with 6.2 percent of
that 9.8 percent directed to Medicare from General Revenues. In addition,
in 2078, the gap between Medicare revenue and Medicare spending for Part A
would be the equivalent of 4 percent of gross domestic product. This
difference is attributable to the projected imbalance in the HI trust
fund.
"The
projections shown in this report continue to demonstrate the need for
timely and effective action to address Medicare's financial challengesboth
the long-range financial imbalance facing the HI trust fund and the
continuing problem of rapid growth in both HI and SMI expenditures,"
the report said.
The
Medicare trustees are Treasury Secretary and Managing Trustee John W.
Snow, Secretary of Health and Human Services Tommy G. Thompson, Labor
Secretary Elaine L. Chao and Social Security Commissioner Jo Anne B.
Barnhart. Two other members, the public trustees, are appointed by the
President with Senate confirmation. The public trustees are John Palmer
and Thomas Saving. They serve four-year terms and represent the general
public. Dennis Smith, acting administrator of the Centers for Medicare
& Medicaid Services, serves as secretary to the Board of Trustees.