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Medicare Trustees Report

By May 25, 2011Commentary

Every year the Medicare trustees report on Medicare’s funding.  This year’s report is fairly frightening and should add urgency to efforts to reform Medicare.   (Trustees Report) Even scarier, however, is the fact that this report is based on unrealistic provider payment assumptions, and the alternative scenario from the Office of the Actuary will be explored in a post tomorrow.  Medicare has two primary funds:  the Hospital Insurance Fund, which covers Part A, and the Supplementary Medical Insurance Fund, which covers Parts B and D.  In their overview the trustees note that the analysis of the Funds’ status must be based on current law, which would include among other things, the looming 30% cut to physician reimbursement.  The trustees note this is unlikely to occur and conclude that “actual future costs for Medicare are likely to exceed those shown by the current-law projections in this Report.”

Medicare covered about 47.5 million people in 2010.  About 25% are in Medicare Advantage plans.  The funds had income of about $486 billion in 2010 and expenditures of about $523 billion.  The assets at the end of the year were $344 billion.  Obviously there was a shortfall in expenses over revenue, which reduced the assets by $37 billion and obviously, as the trustees note, this can’t go on for much longer.  They currently say the Hospital Insurance Fund will be exhausted by 2024, which is five years sooner than last year’s projection, and again, assumes that provider payment reductions for future years stick.   The Supplementary Fund is in much better shape, because it’s income through Part B and D premiums that beneficiaries pay gets reset every year based on costs.  But the Part B costs in particular are growing very fast and there is only so much cost-sharing you can pile on some beneficiaries.

Medicare is a mess, and while people can be hopeful about the PPACA provisions like comparative effectiveness, ACOs, medical homes, etc., they are unproven and likely, based on history, to yield much fewer savings than projected.  Radical solutions are needed, something like turning the whole program into Medicare Advantage and making the plans compete on the basis of premiums, with a cap on annual increases, and raising the eligibility age to the actuarial equivalent of where it was when Social Security or the program was started, and making well-off beneficiaries pay more or all of the cost, depending on their income.  The program eventually cannot see spending growth rates that are any higher than the per capita rate of GDP growth.


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