Medicare Solvency Predictions Inaccurate, Panel Says

Because of the increasing use of medical technology, health care costs "will grow faster" than what the government has assumed, giving Medicare a "less rosy" long term financial outlook, according to the Technical Review Panel on the Medicare Trustees' Reports, the New York Times reports. HHS Secretary and Medicare trustee Donna Shalala created the panel, made up of three economists and three actuaries, to evaluate "assumptions, estimates and forecasts" made each year by the six Medicare trustees, who advise Congress on how to improve Medicare's "financial condition." In April, the trustees said that the hospital insurance trust fund, which pays Medicare beneficiaries' hospital costs, would be solvent until 2025. But the advisory panel's report indicates that the fund will run out of money by 2021. The panel's chair, Dale Yamamoto, an employee benefits expert for Hewitt Associates, said, "We think health care costs will grow somewhat faster than the trustees now assume. That means that the current long term projections of Medicare spending over the next 75 years are low." Medicare's annual cost in fiscal 2000 was $218 billion. That figure is expected to double by 2010. While the trustees have "assumed" that average costs for each Medicare beneficiary after 2025 would grow at the same rate as the gross domestic product, the panel said the costs per beneficiary will grow about 1 percentage point more than the annual increase in gross domestic product per capita. If those higher estimates prove accurate, the Times reports that after 75 years, Medicare's annual cost would be 60% higher than now assumed.

Technology 'Driving' Factor
Panel member Michael Chernew, a University of Michigan health care economist noted that technology "is the primary factor driving the growth of per capita health care costs in the long run." But panel member David Cutler, a Harvard University economics professor, said that Americans would be willing to pay additional costs of medical services, as the services would likely "get better as they become more expensive." The advisory panel did not see "managed care as a panacea," the Times reports. Chernew said, "Managed care may get inefficiencies out of the system and can reduce the level of health care costs, but it does not necessarily slow the rate of growth in costs to a sustainable rate. It's uncertain how much managed care will slow the adoption of new medical technology." While the panel did not discuss proposals for new Medicare benefits, such as for prescription drugs, the Times reports that "its report is likely to reinforce the need for caution as Congress considers such expansions of the program." Shalala is expected to present the panel's findings to the other Medicare trustees this week (Pear, New York Times, 11/30).