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What Will Medicare Really Cost?

By June 20, 2012Commentary

It is important for policymakers and the public to know what the status of Medicare’s trust funds is; how much revenue is likely to flow into those funds and most importantly, what are future expenditures going to be.  Both the Congressional Budget Office and CMS itself periodically issue reports, but those reports are constrained by having to utilize current law in making projections.  Increasingly they are warning that these “official” projections don’t reflect likely reality and have shown alternative scenarios.  In a recent memo, the CMS Office of the Actuary gives what it believes is more realistic idea of what Medicare could look like over the next few years.   (OA Memo)   The most obvious issue is the physician reimbursement conundrum.  At this point, existing law still is calling for a massive reduction in physician payments due to the accumulated Sustainable Growth Rate formula decreases that Congress has delayed for several years.  But there are problems with payments to other providers as well.

Looking at doctor reimbursement, current law would call for a 31% reduction in payments in 2013 and that is what official estimates of Medicare Part B spending call for.  This memo recognizes that that will not happen.  In addition, most other provider types are scheduled to receive updates limited by a productivity formula that may well reduce payments below what those providers are able to stay in business on.  The obvious concern with both individual and institutional providers is that lower reimbursement may lead to them dropping out of Medicare and beneficiaries having trouble accessing care.  Another concern is the continued shift of costs to private insurance, which drives its cost up.  Under the alternative scenario, physician payments increase by 1% annually and the productivity reductions for other providers are gradually phased down.  Under these more realistic scenarios, over the next few decades, Medicare will be consuming 2-4% more of GDP than the existing law scenario assumes.  Even in the coming decade this likely means an additional expenditure of tens of billions of dollars.  Not pretty.

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