October 21, 2010 | Comments Off on Medicare Trust Fund Solvent thru 2029 — Maybe
Posted by Frank Ciesla
The Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds reported that the Medicare Hospital Trust Fund’s solvency has now been extended from 2017 to 2029. On the surface, this is good news for everyone. Medicare, as we are all aware, is the major payor which provides those over 65 with the ability to obtain health care services. It is also good news for the providers, in that Medicare will continue to be a viable payor. However, a deeper analysis is required as to the methodologies employed to reach a determination as to Medicare solvency through 2029.
Various assumptions, consistent with the current Legislation, have been made by the Trustees, as set forth in the fact sheet released on Thursday, August 5, 2010 by the CMS Office of Public Affairs. That release states in part:
Source of savings
The Trustees note that the largest amount of projected savings under the Affordable Care Act comes from lower annual increases in the prices Medicare pays for services by hospitals, skilled nursing facilities, home health agencies, and most other providers. Payment increases will be reduced by the increase in “multifactor” productivity for the economy overall, which is about 1.1 percent per year.
In addition, in its comments in regard to Part B, the Release states:
Projected costs for the Part B account in the Supplementary Medical Insurance (SMI) Trust Fund are also much lower as a result of the affordable Care Act. Part B spending currently approximates 1.5 percent of Gross Domestic Product (GDP). Last year’s Trustees report projected that would increase to 4.5 percent by the end of the 75 year projection period. However, now, under current law, it is projected to reach only 2.5 percent of GDP by the end of the Trustees’ 75-year projection period – a substantial reduction. Part B is automatically in financial balance because beneficiary premiums and general revenue financing are reset each year to match the expected costs of the program for the following year. The Trustees state that actual Part B costs are very likely to exceed the current law projections because Congress is expected to continue to override an existing provision in the Medicare law that would require substantial reductions in Medicare payments to physicians over the next 3 years. Under the current “sustainable growth rate” (SGR) formula, physician payment rates would have to be reduced by about 23 percent on Dec. 1, 2010, a further 6.5 percent on Jan. 1, 2011, and 2.9 percent on Jan. 1, 2012.
A couple of things are very clear from this analysis. The first is that Trust Fund solvency is based on the assumption that there will be significant reductions in the annual Medicare payment increases to the providers. Further, while it acknowledges the substantial cuts that would need to be implemented under the “Sustainable Growth Rate” over the next three years, it also acknowledges that this is unlikely.
It should be noted that the current deferral of the cuts in physician payment expires November 30th. One mechanism to continue to balance the Part B Supplemental Medical Insurance Trust Fund is to continue to raise Medicare Part B premiums for “high income individuals.” For 2010 while the majority of Medicare beneficiaries, approximately 46.6 million, pay $96.40 for Part B coverage each month, a minority, 1.6 million, about 3%, will pay more.
In 2010, the following people aren’t protected and will pay the standard $110.50 or more for their Part B premium:
|
Your Yearly Income in 2008 |
||
| File Individual Tax Return | File Joint Tax Return | You Pay a Part B premium of |
| $85,000-$107,000 | $170,001-$214,000 | $154.70 |
| $107,001-$160,000 | $214,001-$320,000 | $221.00 |
| $160,001-$214,000 | $320,001-$428,000 | $287.30 |
| Above $214,000 | Above $428,000 | $353.60 |
This approach shifts cost increases under Medicare Part B, primarily payments to physicians, to a minority of Medicare beneficiaries. This minority is expected to pay significantly more for the same Medicare benefit received by a majority of Medicare beneficiaries. There will be a conflict between raising premiums to a small minority of Medicare beneficiaries (in some cases tripling the premium) to a level that may not be politically or economically viable, versus reducing payments to the physicians, (also a political and an economic issue), or raising the payments from the general revenue funds (which will impact every taxpayer). This minority generally is the same group that is making over $200,000 ($250,000 filing jointly), and will experience a substantial increase in their Medicare taxes in 2014, on their income including interest, pension payments, dividends etc., not limited to W-2 wages. For this group, they not only will pay a higher Part B premium, but also may be required to pay the Medicare tax.
As pointed out in our previous blog posts, physician costs continue to rise. If Medicare payments to physicians for their services continues to decline, physicians may determine they can no longer afford to take care of Medicare beneficiaries.
The report further recognizes:
Short and Long Term
The changes in the Affordable Care Act bring the HI trust fund much closer to financial balance in both the short range and the long range. However, additional policy initiatives are needed to ensure that the HI Trust Fund meets the Trustees’ test of short-range financial adequacy or the test of long-range actuarial balance. The Trustees reported that the time gained by postponing the depletion of the HI trust fund should be used to determine effective solutions to the remaining long-range HI financial imbalance. We believe that solutions can and must be found to ensure the financial integrity of HI and to reduce the rate of growth in Medicare costs, building on the strong measures enacted as part of the Affordable Care Act.
As can be seen by this paragraph, even with all of the “known” current changes, there is a recognition that additional steps will need to be taken in order to generate additional revenue for the Medicare Program. These steps, which may include potentially higher Medicare taxes, reductions in Medicare expenses by reducing payments to the providers, primarily physicians, under the Medicare program, or a combination of these approaches, will be necessary to maintain the viability of the Medicare program.
Most significant is the last appendix in the Actuarial Opinion Analysis, by the Medicare Actuary, which sets forth in part:
. . . . In past reports, and again this year, the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law due to further legislative action to avoid substantial reductions in the Medicare physician fee schedule. While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require physician fee reductions totaling an estimated 30 percent over the next 3 years – an implausible result.
Further, while the Patient Protection and Affordable Care Act, as amended, makes important changes to the Medicare program and substantially improves its financial outlook, there is a strong likelihood that certain of these changes will not be viable in the long range. Specifically, the annual price updates for most categories of non-physician health services will be adjusted downward each year by the growth in economy-wide productivity. The best available evidence indicates that most health care providers cannot improve their productivity to this degree-or even approach such a level-as a result of the labor-intensive nature of these services.
Without major changes in health care delivery systems, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to far higher costs for Medicare in the long range than those projected under current law.
For these reasons, 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). . . .
With this sobering analysis, providers must view every change carefully and should analyze its impact on their future ability to provide services in a financially viable environment. The projection of solvency is based to a great degree on uncertain factors which may change over time.