Report: IPAB likely will be trigged in 2017; Medicare trust fund will remain solvent until 2028

Medicare's trust fund will be depleted in 2028, two years earlier than Medicare's trustees had estimated last year, according to a new report the trustees released Wednesday.

The trust fund covers the cost of Medicare's hospital insurance program. Other Medicare programs, such as those that cover prescription drug and outpatient care costs, are funded by premiums and federal budget allocations.

Last year, Medicare's trustees estimated that the fund would remain solvent until 2030.

According to the Wall Street Journal, Medicare in 2015 had 55.3 million beneficiaries, while Medicare spending totaled $647.6 billion.

Report findings

The trustees' new report estimates that Medicare will remain solvent until 2028. The revised date means that, under Medicare's current payroll tax collections, the program would only be able to cover 87 percent of its projected costs in 2028. That rate would drop to 79 percent by 2043, and then begin gradually increasing, according to the report.

CBO: Medicare hospital trust fund will be exhausted years earlier than trustees predicted

The report noted revisions to projected Medicare revenues and costs as a reason for the earlier depletion date. According to the report, Medicare costs are projected to increase by around 5.4 percent annually over the next five years, compared with a 2.4 percent annual growth rate over the last five years.

The trustees noted that the new projected depletion date is 11 years later than estimates made prior the Affordable Care Act's (ACA) implementation.

IPAB may be looming

Even though trustees revised the trust fund's solvency date, the report noted that projected growth per capita in Medicare spending did not exceed its target—which would have required the Independent Payment Advisory Board (IPAB) make cost-cutting recommendations for Medicare. By law, IPAB recommendations automatically take effect unless Congress develops an alternative way to save equal amounts of money.

The report projects, however, that IPAB will be triggered in 2017.

IPAB is a 15-member panel of health care experts established under the ACA. However, President Obama has not yet appointed any members, and Republican lawmakers have pledged to reject any nominees out of an overall opposition to IPAB.

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According to the Congressional Research Service, the ACA appears "to create a requirement" for the HHS secretary to "develop and submit" cost-cutting recommendations for Medicare to Congress "in the absence of a required IPAB recommendation, regardless of the reason that the IPAB has not submitted a proposal within the required time frame."

Report projects higher premiums for some beneficiaries

The trustees also projected that almost one-third of Medicare beneficiaries will face higher premiums next year. According to the report, higher-income Medicare Part B beneficiaries could see premiums spike by as much as 22 percent.

The hike is the result of a policy that in some cases forces certain beneficiaries to shoulder rising Medicare costs. Under the Social Security Act's "hold harmless" provision, Medicare is barred from passing on premium increases that are greater than the amount most beneficiaries would receive through Social Security's annual cost-of-living adjustment. Next year, that adjustment is expected to be just 0.2 percent.

According to Tricia Neuman, SVP at the Kaiser Family Foundation, Medicare therefore cannot pass on significant premium increases to the 70 percent of beneficiaries who are eligible for the hold harmless provision next year. Instead, the higher premiums could be passed along to the remaining 30 percent of beneficiaries.

Under the trustees' projection, beneficiaries who pay the standard $121.80 monthly premium for Part B coverage in 2016 would have to pay monthly premiums of $149 in 2017. Beneficiaries with higher incomes would pay more. According to the report:

  • Individuals with annual incomes between $85,001 and $107,000 and couples with annual incomes between $170,001 and $214,000 would likely pay a monthly premium of $204.40 in 2017, up from $170.50 this year; and
  • Individuals with annual incomes greater than $214,000 and couples with annual incomes greater than $428,000 would likely pay a monthly premium of $467.20 in 2017, up from $389 this year.

According to the Journal, the potential premium increases also could affect other Medicare beneficiaries, including those who:

  • Are enrolled in Medicare but have deferred or are ineligible for Social Security benefits;
  • Enroll in Medicare for the first time in 2017; or
  • Have lower incomes and whose premiums are paid by state Medicaid programs.

Further, the report noted that all Medicare beneficiaries could see their annual Part B deductibles increase from $166 this year to $204 in 2017.

The report also projected that monthly Medicare Part D premiums could increase from $34.10 to $40.59, while Part D deductibles could increase from $360 to $400.

Trustees in 2015: Medicare's hospital fund strengthened by ACA, won't go bankrupt until 2030

Reaction

Observers expressed mixed reaction about the trustees' predictions on Medicare's solvency.

"Not hitting the trigger [for IPAB] is good news for health care investors," says Timothy Anderson, a financial analyst at Sanford Bernstein.

Still, Department of the Treasury Secretary Jacob Lew said, "Medicare faces a substantial long-term shortfall that needs to be addressed."

According to the Washington Times, House Republicans have called for significant reforms to ensure Medicare's viability.

Citing the report, Department of Labor Secretary Thomas Perez called for more generous leave and child care policies, which he said could help keep five million women in the workforce. Such a change would add $5 billion to Medicare revenue in 2016, Perez noted.

In regard to the possible premium increases, Acting CMS Administrator Andy Slavitt says federal officials "will continue to monitor the data and explore administrative options as needed" (Timiraos, Wall Street Journal, 6/22; Dunsmuir, Reuters, 6/22; Tergesen, Wall Street Journal, 6/22; Howell, Washington Times, 6/22; Cubanski tweet, 6/22; Fiegl, American Medical News, 6/3/13; Mukherjee, Fortune, 6/22; Edney/Tracer, Bloomberg, 6/22).


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