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Medicare Trustees’ Report

By June 7, 2018Commentary

Every year the Trustee’s for Medicare’s insurance funds have the depressing duty of reporting on the status of the program’s finances.  This year’s report once again warns of impending disaster.   (Trustee’s Report)  The report is put together by Medicare’s Office of the Actuary, which I think is a pretty reputable group.  Medicare’s various branches, Part A (inpatient), Part B (outpatient), Part C (Medicare Advantage) and Part D (drugs), are each funded by different means, so different parts of the program have a different financial outlook.  Part A is largely funded by the Hospital Insurance Fund, with a beneficiary deductible and some coinsurance.  Part B and Part D are basically paid for from the Supplemental Medical Insurance Fund, and there are beneficiary premiums and coinsurance.  The Supplemental Fund is generally in better shape because beneficiaries pick up more of the cost, including overruns.  The default option if the Hospital Fund runs out of money is to reduce provider payments til the balance is restored.  According to this year’s analysis that will occur in 2026, or eight years from now.  Beginning this year, expenses from the Hospital Fund are projected to exceed inflows.  The Supplemental Fund technically can’t run out of money, because beneficiaries just get to pick up more and more of the cost to keep Part B and D going.

The Trustees again expressed concern that provider payments, which currently have very constrained growth rates, may fall short of cost growth for providers, particularly if inflation picks up.  Inadequate payments could cause access issues if providers stop participating in Medicare.  Under current law, Medicare will go from a little under 4% of GDP now to about 6% by 2040 and plateau there.  This rapid growth, largely from baby boomers reaching Medicare eligibility age, will cause the Hospital Fund to only be able to pay for 91% of Part A costs in 2026.  One basic problem is that beneficiaries aren’t contributing as much as they end up costing the program, so current workers are making up the shortfall, but even that isn’t enough.  Here is another big problem; about 8.9 million of the 58.4 million people covered by Medicare are “disabled”.  This definition has become so loose that people who basically just don’t feel like working qualify.  All of the disabled who are under 65 should be removed from the program and covered by Medicaid, if eligible for that.  Taking those 9 million people off Medicare would alone shore up the program for several years.  And wealthy people should pay more of their costs, in some cases, all of it.  And the program should be vouchered; a beneficiary gets x dollars that can be used for a Medicare Advantage plan or to stay in a FFS option.  All these options would give us many more years to figure out a true long-range solution.

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