Unbiased Analysis of Today's Healthcare Issues

Medicare Trustees Report: We’re Fucked

Written By: Jason Shafrin - May• 21•12

Despite lower costs than previously projected, the Medicare Trust Fund is still in bad shape.

he estimated exhaustion date for Medicare’s Hospital Insurance (HI) trust fund, “…remains at 2024,the same year shown in last year’s report. As in past years…the fund is not adequately financed over the next 10 years. HI expenditures in 2011 were lower than the previous estimate, but the projected level grows more rapidly than shown in last year’s report because of changes in HI provider assumptions and the projected faster growth in earnings after 2014….HI expenditures have exceeded income annually since 2008, and projected amounts continue doing so through the short-range period until the fund becomes exhausted in 2024.

More important the the exhaustion of the trust fund is how fast Medicare spending grows relative to the overall economy. Like in previous years, the growth in Medicare spending is expected to grow quickly as baby boomers retire.

“Medicare’s costs under the Trustees’ current-law assumptions rise from their current level of 3.7 percent of GDP to 6.0 percent in 2040 and 6.7 percent in 2085.” These projections are unrealistically low as they assume large cuts (~25%) to physician reimbursement level. A more reasonable assumption is that the annual ‘doc fix’ will continue in perpetuity and thus costs will rise even more. Under this alternative assumption:

“Medicare costs would rise to 6.5 percent of GDP in 2040 and 7.8 percent in 2085. Under the full scenario, in which adherence to the ACA cost-saving measures also erodes, costs would rise to 7.0 percent of GDP in 2040 and 10.3 percent in 2085.”

Thus, CMS actuaries project that one out of every 10 dollars in the economy will be spent on Medicare by 2085 if current trends continue.

As stated in the title of this post, we’re fucked.

Medicare Trust Fund

The Medicare program has two components. Hospital Insurance (HI), otherwise known as Medicare Part A, helps pay for hospital, home health, skilled nursing facility, and hospice care for the aged and disabled. Supplementary Medical Insurance (SMI) consists of Medicare Part B and Part D. Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees. Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private “Medicare Advantage” and certain other health insurance plans that contract with Medicare. These plans receive prospective, capitated payments for such beneficiaries from the HI and SMI Part B trust  fund accounts.

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