Medicare Trustees: Reform Needed to Stave Financial Ruin

A report issued April 23 by Social Security and Medicare trustees paints a bleak picture for the future of health care. If expenditures continue to outpace revenues, trustees project the Hospital Insurance trust fund will be depleted by 2024; and the current solvency of the Supplementary Medical Insurance trust fund relies on a scheduled 30 percent reduction in Medicare payment rates for physician services at the start of 2013.

That pay cut isn’t likely to come, of course. “It is a virtual certainty that lawmakers will override this reduction just as they have every year since 2003,” trustees write in the report. This is good news for physicians, but bad news for the future of Medicare. The financial outlook for Medicare is uncertain because provisions designed to reduce costs, such as the sustainable growth rate (SGR), may not be sustained, trustees warn.

“The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, is another, and even larger, source of policy-related uncertainty,” trustees said.

According to a press release issued the same day by the Centers for Medicare & Medicaid Services (CMS), the Health Insurance trust fund would actually expire in 2016 without cost-saving measures implemented in the Affordable Care Act. “These efforts to reform the healthcare delivery system are not factored into the Trustees’ projections as many of the initiatives are just launching,” CMS said.

According to the report, however, the board does assume in their projection that the various cost-reduction measures outlined in the Affordable Care Act will occur. If they don’t, trustees warn, and Congress continues to override the SGR, things could get a lot worse.

If the SGR restraint were overridden, for example, Medicare costs would rise from their current level of 3.7 percent to 6.5 percent of gross domestic product (GDP) in 2040 and 7.8 percent in 2085, trustees project. Under the full scenario, in which adherence to the Affordable Care Act also erodes, costs would rise to 7.0 percent of GDP in 2040 and 10.3 percent in 2085.

“Therefore,” trustees conclude, “the Board recommends that readers interpret the current-law projections as an illustration of the very favorable financial outcomes that would be experienced if the physician fee reductions were implemented and if the productivity adjustments and IPAB [Independent Payment Advisory Board] measures in the Affordable Care Act could be sustained in the long range.”

The American Medical Association (AMA) interprets the report a little differently, seeing it as a confirmation to prevent the 30 percent pay cut scheduled for 2013, and calls for reform.

The AMA writes in an AMAWire, “Over the past 10 years, Congress has enacted 14 short-term patches to stop increasingly weighty cuts, resulting in instability and a dramatically higher cost to permanently eliminate the flawed Medicare payment formula.”

“The AMA is dedicated to ending this damaging cycle and stabilizing Medicare for patients and physicians,” said AMA Board Chair-elect Steven J. Stack, MD. “We will continue to work with policymakers on both sides of the aisle to eliminate the broken Medicare physician payment formula once and for all.”

For further insight, read the report: “2012 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.”


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One Response to “Medicare Trustees: Reform Needed to Stave Financial Ruin”

  1. Brandi Tadlock says:

    Good article – 2016 isn’t very far off; I hope the Supreme Court doesn’t strike down PPACA, or we’ll be in for a mess…

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