2016 Medicare Trustees Report

Here is some grim Friday commentary, as we summarize the 2016 Medicare Trustees report on the status of the funds that support Medicare.  (Trustees Report)   Medicare is supported by two “trust” funds, the Hospital Insurance one, which supports Part A, or inpatient hospitalization and care following a hospital stay; and the Supplementary Medical Insurance one, which supports Parts B and D, or physician and other outpatient services and drug coverage.  The inflow to the funds is from employee and employer Medicare contributions, and, for Part B and D, premium payments; the outflow is payment for services.  If, and when, the trust funds run out of money, payments to providers and potentially benefits will get scaled back.  Medicare currently covers about 55 million Americans, 9 million because they are disabled.

So how are those funds doing?  Very poorly is the honest answer.  Even under more optimistic assumptions (i.e., lower provider payments are sustained) the Hospital Insurance fund will run out in 2028, two years earlier than projected in last year’s report.  The fund is running a current year deficit and has for several years.  The Trustees belief there will be slight surpluses for a couple of years and then deficits that lead to depletion.  The Supplemental fund is in better shape only because the law requires higher premiums from beneficiaries to keep it at a certain level.  Politically, it may be difficult to sustain rapidly growing Part B and Part D premiums.  Congress also kicks in money to the Supplemental fund to keep it going, but that adds to the deficit in the general federal budget.

It should be noted as well that these projections assume that currently scheduled reductions in physician payments in 2025 and in payments for other providers will occur, which has proven to be a bad assumption in the past.  Here is the reality–Medicare is in terrible financial shape, and as the Trustees point out, it would be best to address that now rather than wait.  One simple fix is to remove the automatic eligibility for those on Social Security disability and let those people get health care through Medicaid, if they are eligible due to low income.  Another is to turn the whole program over to Medicare Advantage, where annual increases in payments to plans could be capped at annual GDP growth.  Drastic action is needed now or it will be a fiscal disaster at the same time Social Security and other welfare program costs are killing the federal government.