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Medicare Solvency Extended but Trustees Warn Against Complacency

By Emily Ethridge, CQ Roll Call

May 31, 2013 -- Medicare trustees said recently that the program's hospital insurance trust fund will be insolvent in 2026, two years later than projected last year, but warned that the extension does not mean the program should remain the same.

In their report, the trustees attributed several signs of hope for Medicare to changes brought about by the 2010 health care law (PL 111-148, PL 111-152), as well as lower health care spending thanks to the sluggish economy.

"The Medicare report demonstrates, once again, the importance of the Affordable Care Act, which has strengthened Medicare's finances by reining in health care costs," said Treasury Secretary Jacob J. Lew, who's also the managing trustee.

But lawmakers and trustees warned that additional legislative action remains necessary to keep the Medicare program sustainable over the long term, and urged stakeholders not to become complacent. Under current law, scheduled hospital insurance fund tax income would cover only 87 percent of estimated expenditures through 2023, decreasing to about 70 percent in 2050.

Robert Reischauer, a trustee, warned that even though he sees reasons for optimism, it would be a mistake to see the two-year extension of solvency as "a significant development."

"Further major legislative initiatives above and beyond the Affordable Care Act will be required," he said.

Lew said that lawmakers would need to work in a bipartisan manner to save the programs.

Leaders on the Senate Finance Committee agreed with the need to take action quickly.

"These numbers can allow us to be optimistic, but they are not a reason for inaction. We are facing a wave of retiring baby boomers. Close to 10,000 people a day qualify for benefits," said Chairman Max Baucus, D-Mont., in a statement.

Ranking Republican Orrin G. Hatch of Utah said in a statement that "these reports shouldn't give anyone any comfort." Hatch added that improving Medicare "is a national imperative."

Indeed, the Medicare trustees issued a "Medicare funding warning" for the seventh straight year, largely because money from the government fund is projected to continue to account for more than 45 percent of Medicare's outlays. By 2035, Medicare costs will be 5.6 percent of the gross domestic product (GDP), up from 3.6 percent of GDP in 2012, they added.

Senior government officials said the two-year extension of the hospital insurance trust fund's solvency primarily was attributable to lower-than-expected health spending in 2012, as well as lower program costs in Medicare Advantage required by the health care law.

The trustees noted that per-beneficiary spending in Medicare grew at a 1.7 percent annual rate from 2010 to 2012 and is expected to continue growing slowly over the next decade. They also said preliminary estimates show that Part B premiums for 2014 are expected to stay the same as 2013, which is $104.90 for the standard monthly premium.

Medicare's total expenditures were $574.2 billion in 2012, up from $549 billion the previous year, according to the report.

Senior government officials noted that the hospital insurance fund's expenditures in 2012 were roughly $3.6 billion lower than expected. The vast majority of that, they said, was due to lower payments in skilled nursing facilities, as well as lower hospital and health system payments.

Reischauer said an important factor in improving Medicare's future is whether private insurance companies will follow the program's lead—so that providers will stay in Medicare, and health care costs come down overall.

"The big question for the future is whether initiatives in the private sector will complement and reinforce, or undermine, the fiscal restraints Medicare is attempting to introduce by health care reforms," said Reischauer.

Health and Human Services Secretary Kathleen Sebelius said she hoped more private insurers would adopt delivery system changes encouraged in the law, such as accountable care organizations and medical homes.

"There's a certain irony in the continued votes to, on one hand, repeal the Affordable Care Act, and on the other to capture the savings that are part of the structure of the Affordable Care Act," she said. "I'm hoping that, as demonstrated, that some of that structure is not only benefiting the public health programs but actually looking at and complementing the private side, there will be a more significant embrace of the framework to really transform the underlying delivery system."

Stakeholders said the trustees' report showed that Medicare's fiscal challenges could be addressed without drastically changing the program as congressional Republicans have proposed.

"Today's release of the 2013 Medicare Trustees Report confirms what we already know to be true: Medicare is not in crisis," said Medicare Rights Center President Joe Baker, in a statement.

AARP Executive Vice President Nancy LeaMond suggested improving care coordination, limiting high drug prices and reducing unnecessary services as ways to save Medicare money.

"Too many people in Washington think the only way to address Medicare's financial challenges is to cut benefits or ask seniors to pay more. But that's not the answer," she said in a statement.

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