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Medicare Trust Fund Gains Four Years of Solvency in Trustees' Report

By Rebecca Adams, CQ Roll Call

July 28, 2014 -- Medicare spending remains low by historical measures, prompting program trustees to project that the hospital inpatient trust fund will be depleted in 2030, four years later than projected last year. The new estimate released today matches one by the Congressional Budget Office released earlier this month.

The Part A trust fund is a partial measure of the health of the health program for the elderly and disabled. Other components, such as the Part B outpatient program, also have a stronger financial outlook than last year.

As a result, seniors' Part B premiums for doctor office visits and outpatient care will be unchanged in 2015, at $104.90. The rates were first set at that amount in 2013.

The trustees also forecast lower prescription drug spending than last year because of lower projected costs and higher drug rebates under Medicare's Part D drug program.

Over the next five years, the report anticipates that outpatient spending will grow at an average annual rate of 5.7 percent, compared to 6.2 percent over each of the last five years. Drug spending is anticipated to grow an average of 9.9 percent annually over the next five years, compared to 7.2 percent each year over the past five years. Inpatient hospital costs are expected to average 3.9 percent over the next five years and have averaged 2.5 percent annually over the last five years.

One difference in this year's report is that the projections assume that Congress will stave off a 20.8 percent cut to Medicare physician payments in April, when a short-term "doc fix" patch expires. That makes the estimates in this report a bit more useful than they have been in the past, said trustee Robert Reischauer, because trustees assume that physician payments would rise by 0.6 percent per year, or the annual average over the past decade.

Medicare's finances remain fundamentally secure in the years ahead, said Treasury Secretary Jacob J. Lew. However, he said that changes should be made to the program to ensure that funding will be able to cover expenses in the long term.

"We must make manageable changes now so we do not have to make drastic changes later," said Lew.

The program, which spent $583 billion in 2013, is fiscally unsustainable over the long run, said Reischauer. The sooner policymakers make changes, the less disruptive those changes will have to be.

Reischauer, trustee Charles Blahous and Health and Human Services Secretary Sylvia Mathews Burwell said that they cannot pinpoint precisely why Medicare spending has grown at a slower-than-expected rate in recent years.

Some potential factors include a weak economy, an increase in the burden placed on consumers' out-of-pocket costs outside of Medicare through high-deductible plans, greater restrictions on beneficiaries' choice of providers, higher use of drugs that could prevent hospitalization, greater pressure on providers to become efficient and prevent patients from undergoing hospitalization and changes in the health care law (PL 111-148, PL 111-152).

But determining which factor is most important and how long each will continue to hold down Medicare spending is not possible.

"No one knows and there is an active debate going on," said Blahous, adding that trustees are not going to settle the disagreements.

The slower growth means that an advisory panel known as the Independent Payment Advisory Board does not need to be directed to come up with recommendations for Congress to lower spending.

An administration official said that the trustees assumed that the lower growth trend is expected to continue for the near-term future.

The average per-person average cost for Medicare spending was $12,210 in 2013, compared to $12,209 in 2012.

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