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Gloomier-Than-Expected Forecast For Medicare

Medicare will start running out of money in 2024 — five years earlier than projected last year – as a result of the sluggish economic recovery, the program’s trustees reported today.

The outlook for the federal health insurance program that covers 47.5 million elderly and disabled Americans is a dramatic shift from last summer. That’s when the trustees, including Treasury Secretary Timothy Geithner and HHS Secretary Kathleen Sebelius, proudly projected that the new health law had extended the solvency of the program by 12 years from 2017 to 2029.

Medicare faces serious financial challenges over the next few decades as the aging population and rising costs push expenses higher while the employer and employee tax revenues that fund the health insurance program struggle to keep pace. Last year, the total cost of the program was $523 billion.

Swings in the predictions about the financial health of Medicare are common year to year. But the latest scorecard puts renewed pressure on the administration to find ways to improve the economy and make sure its experiments in the health law to lower health costs can actually work, said Deborah Chollet, a senior fellow with Mathematica, a nonpartisan research firm. “The general health of the economy is crucial” to the future of the Medicare fund, she said.

Even Geithner acknowledged that the health law won’t do enough on its own to control rising health costs – a common complaint of Republicans who have been pushing for repeal of the health overhaul. “We must go beyond the Affordable Care Act and identify additional reforms,” he said.

Sebelius said the a new patient safety initiative, announced recently by administration officials could save Medicare $10 billion over the next 10 years.  

The trust fund covers Part A of the Medicare program, which pays for hospital costs. In 2010, payroll taxes that support the fund took in $182 billion, about $2.5 billion less than expected, and have fallen short each year since 2008.

Another factor hurting Medicare’s future solvency: The trustees estimate people who are 65 now will live 2.4 months longer than projected a year ago. While that’s good news for beneficiaries, it means higher costs for the program.

Social Security, which faces some of the same pressure, will remain solvent until 2036-one year earlier than projected last year, program trustees said.

AARP Executive Vice President John Rother said lawmakers must look at more than just Medicare to find ways to reduce health care spending. “While provisions of the Affordable Care Act are helping to control spending in Medicare, far more must be done to reduce costs throughout the health care system and extend the Medicare trust fund for [hospitals] for the long term,” he said.

Some Republicans said that five fewer years of solvency for the Medicare trust fund demands that Congress take steps now to control spending. “Today’s report makes it clearer than ever that doing nothing is not an option,” House Ways and Means Chairman Dave Camp, R-Mich., and other panel subcommittee chairmen said in a statement. “The failure to act means current, as well as future beneficiaries, will face significant cuts even sooner than previously estimated.”

But Senate Finance Committee Chairman Max Baucus, D-Mont., had a different interpretation, saying the report shows that the health law’s provisions governing Medicare are necessary. “Health reform strengthened Medicare by cutting wasteful subsidies to private insurance companies and helping doctors save money by increasing coordination, and these improvements extended the life of the program by more than a decade,” Baucus said.

The report’s findings come as the parties are debating what role Medicare spending should play in reducing the federal deficit. 

In last fall’s campaigns, Republicans accused Democrats of stripping hundreds of billions of dollars from the program to fund the health law’s subsidies for insurance coverage and Medicaid expansion. President Barack Obama and Democrats returned the favor last month when House Budget Committee Chairman Paul Ryan, R-Wis., unveiled his plan to reduce the federal deficit, in part by converting Medicare to a “premium support” program where the government would pay a set amount per beneficiary.

Obama and Democrats, citing an analysis from the nonpartisan Congressional Budget Office, said the Ryan plan would force seniors to pay more for their medical care. Last week, House Republican leaders backed away, suggesting sweeping changes like the Ryan proposal won’t become law this year. This week the message shifted again, with House Speaker John Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky., insisting that Medicare changes must be part of the negotiations over raising the federal debt ceiling.

Separately, the administration has also released a state-by-state analysis about how the health law is benefitting Medicare recipients. Health care providers who took payment cuts in the law in exchange for new customers are sure to rebel against further reductions.

And with the 2012 elections just 18 months away, Democrats and Republicans may be reluctant to strike a deal on Medicare, preferring instead to make each party’s plans for the program a central focus of campaigns where control of the White House and Congress are at stake, pointing to 2013 as the year for a deficit deal. 

Related Topics

Aging Cost and Quality Medicare The Health Law