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Medicare’s Solvency Extended–Or Is It?

By August 13, 2010Commentary

Fiddling with numbers is a time-honored tradition in health care, especially government run health care.  The theory appears to be that most people just won’t remember what you told them a year ago when it turns out not to be true.  The Medicare Trustees issue an annual report on the state of Medicare financing.  This year’s version may be somewhat politicized because of the makeup of the Trustee board when the report was approved.  The report concludes that under current law, which includes the recent health reform legislation, the solvency of the Medicare trust funds has been extended by a number of years, to about 2030.  The actuaries compiling the report are forced to use that actual law existing when the report is created as the basis for their projections.  The report, however, can’t hide the immense fiscal catastrophe bearing down us even under the “current law” scenario.  For example, the trust funds are currently being depleted–more is being paid out in benefits than is taken in from Medicare taxes.   (Trustees Report)

But of course “current law” is a completely misleading way to look at Medicare’s solvency.  Medicare’s chief actuary, Richard Foster, who courageously pointed out the flaws in CBO’s and others’ analyses of the health reform proposals, authors a Statement of Actuarial Opinion regarding the report.  In it he states that while the Part B projections are reasonable under “current law”, “they are not reasonable as an indication of actual future costs.  Current law would required physician fee reductions totaling an estimated 30 percent over the next 3 years–an implausible result.”  He believes, as does everyone else, that Congress will not allow this to occur.

In regard to the changes to Medicare payments for other providers, as he has before Foster points out that the reductions assume productivity improvements which are unlikely to occur and says “there is a strong likelihood that certain of these changes will not be viable in the long range.”  Further “the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services.”  At the end of the projection period he notes that Medicare prices would be less than half their current level and below the current level of Medicaid reimbursement, which is widely acknowledged to be causing access problems.  He anticipates that Congress would be forced to intervene, just as it has in regard to physician payments.  He concluded that “the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range…or the long range.”

Foster’s brief statement is buried at the very back of the report.  It should be highlighted as the introduction.  It is only three pages long and should be read by every citizen of voting age, especially the younger people who are going to have to live through this nightmare.  The Administration should be ashamed of its continuing propaganda campaign to convince people that the reform law was a good thing; a campaign which is diverting attention from the ongoing crisis in Medicare and Medicaid spending.  The Administration and Congress should be focused on creating a permanent solution to the problem, not trying to sweep it under the rug with clever accounting and very short-term fixes.

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