Trustees: Without changes, Medicare will run out in 2024

Projection remains unchanged because of provider cuts from debt deal

April 24, 2012

Medicare's hospital insurance fund is expected to run out in 2024, a projection unchanged from last year, according to a report released Monday by the board of trustees for Medicare and Social Security.

Unlike last year's trustees' report, which predicted that the Medicare fund would become insolvent five years ahead of schedule, this year's report focuses on concerns about Social Security's trust funds, which the trustees predicted would run out of money in 2033, three years earlier than projected last year.

"Both programs took a turn for the worse this year," said trustee and George Mason University senior research fellow Charles Blahous.

Report: Medicare will be unable to pay out full benefits by 2024
In 2011 alone, Medicare redeemed $27.7 billion in trust fund assets to cover hospital insurance expenses.  

Over the next 10 years, the trustees predict that the hospital fund's expenditures will grow by an annual average of 5.3%. Meanwhile, they predict that the fund's income will grow by an annual average of 6%.

Nonetheless, the trustees predict that Medicare's hospital insurance fund will no longer be able to pay for beneficiaries' full hospital benefits by 2024. Instead, the trustees predict that in 2024 the fund will only be able to pay out 87% of the projected benefits for that year and 67% of the projected benefits in 2050.

According to Modern Healthcare, the insolvency date did not change despite growing Medicare costs in part because of a 2% cut in provider payments that began in January. The report said the solvency date would have accelerated without the reduction, which was part of a deficit reduction deal reached last summer.  

In addition, a senior government official said the insolvency date remained stable because hospital expenditures were lower than anticipated in 2011, with fewer inpatient admissions. Although the cause of the decrease is unclear, the official says more patients may have received procedures in outpatient settings.  

According to the report, Medicare's hospital insurance has been paying out more than it has received since 2008. Moreover, it notes that Medicare's hospital insurance trust fund has failed to meet the trustees' formal test of short-range financial adequacy every year since 2003.

Trustees: Report highlights need for reform
Acting CMS Administrator and Secretary of the Board Marilyn Tavenner said, "The trustees' report tells us that while Medicare is stable for now, we have a lot of work ahead of us to guarantee its future."

She noted that the federal health reform law "is giving CMS the ability to do this work, with tools to lower costs, fight fraud, and change incentives so that Medicare pays for coordinated, quality care and not the number of services."

Both sides of aisle say findings support their policies
According to CQ Today, both Democrats and Republicans on Monday said the report supports their policies on entitlement spending.

Democrats said the report confirms that the federal health reform law has slowed Medicare spending and extended the program's solvency. Moreover, Rep. Sander Levin (D-Mich.) said that the report indicates that the health reform law's provisions could produce even greater savings. He called on Republicans to "stop their efforts to end the Medicare guarantee, which would only place enormous additional costs on the backs of seniors and send our nation's health care costs dramatically higher."

Meanwhile, Republicans said the report indicates the need for immediate entitlement reform. Sen. Orrin Hatch (R-Utah), ranking member of the Finance Committee, said that allowing Medicare spending to continue to grow "is no longer an option." He called on President Obama to stop "pushing politically motivated policies" and "step up to the plate and lead" to find a way to fix the program.

Experts: Report makes uncertain assumptions
Some experts and officials questioned the report, saying it is based on a number of financial and political assumptions that could prove unrealistic, Reuters reports.

The trustees are required to base their projections of Medicare costs on current law, according to the Wall Street Journal's "Washington Wire." For example, the report assumes that a scheduled 31% pay cut to physicians will take place in 2013. However, it "is a virtual certainty that lawmakers" will override the cut, the report noted.

The report also assumes that the deficit-reduction agreement to reduce Medicare spending by 2% annually will hold over the next 10 years and that the Supreme Court will uphold the health reform law, both of which could prove untrue (AP/Washington Post, 4/23; Crittenden/Morath, Wall Street Journal, 4/23; Daly, Modern Healthcare, 4/23 [subscription required]; Zigmond, Modern Healthcare, 4/23 [subscription required]; Baker, "Healthwatch," The Hill, 4/23; Walker, MedPage Today, 4/23; Werber Serafini/Galewitz, Kaiser Health News, 4/23; Harrison, CQ Today, 4/23 [subscription required]; Sanger-Katz/McCarthy, National Journal, 4/23; Norman, CQ HealthBeat, 4/23 [subscription required]; Morgan, Reuters, 4/23; Radnofsky, "Washington Wire," Wall Street Journal, 4/23).

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