Medicare Given Two More Years to Live

Medicare’s Board of Trustees announced last week that it has projected the program’s life will extend another two years to 2026

But as any physician knows, predicting how long someone will survive is a guestimate at best. The Medicare trustees, likewise, have no such illusions. “Projections of Medicare costs are highly uncertain, especially when looking out more than several decades,” the trustees’ actuaries write at the outset of the 274-page report, which projects out 75 years.

But as Medicare stands today, the program’s life has been extended, thanks to healthcare reform which “squeezed nearly $500 billion out of Medicare over 10 years, in part by trimming payments to many health care providers, including nursing homes and private health plans,” or so writes the New York Times.

Once a year the trustees publish a “state of the union” of Medicare that spells out the health of the program and forecasts the board’s best guess for the future.

The report also spells out the factors that could negatively affect the program’s future. “The financial outlook for Medicare is also uncertain because some provisions of current law that are designed to reduce expenditures may be difficult to sustain,” the trustees’ actuaries write. “The clearest example of this issue is the sustainable growth rate (SGR) formula for physician fee schedule payment levels. The projections in this report assume that, as required by current law, CMS will implement a reduction in Medicare payment rates for physician services of almost 25 percent at the start of 2014. However, it is a virtual certainty that lawmakers, cognizant of the disruptive consequences of such a sudden, sharp reduction in payments, will override this reduction as they have every year since 2003.”

Furthermore, while it appears the Patient Protection and Affordable Care Act (ACA) will reduce Medicare by half a trillion dollars, it is also another wildcard. “This legislation … contains roughly 165 provisions affecting the Medicare program by reducing costs, increasing revenues, improving benefits, combating fraud and abuse, and initiating a major program of research and development to identify alternative provider payment mechanisms, health care delivery systems, and other changes intended to improve the quality of health care and reduce costs,” the actuaries write. While the projections made by the trustees are accurate, historically healthcare providers have been unable to produce productivity improvements required under the act within the time constraints required under the ACA, they conclude.

“If the health sector cannot transition to more efficient models of care delivery and achieve productivity increases commensurate with economy-wide productivity, and if the provider reimbursement rates paid by commercial insurers continue to follow the same negotiated process used to date, then the availability and quality of health care received by Medicare beneficiaries would, under current law, fall over time relative to that received by those with private health insurance,” they write.

Projections for the Future

At least as far as the SGR is concerned, even if Congress overrides it, the Medicare fund will only become depleted one or two years earlier, according to the trustee’s projections. Currently the fund is running a deficit, the trustees report, but is expected to run slight surpluses from 2015 to 2020. After that, the program again will run in the red until becoming depleted in 2026.

The forecast for reimbursements for healthcare providers in the years to come is calculated thusly:

HI services are inpatient hospital, skilled nursing facility, home health, and hospice. The primary Part B services affected are outpatient hospital, home health, and dialysis. The Trustees set the per beneficiary growth rate for these services equal to the sum of the statutory price update and the assumed growth in the volume and intensity of services per person. The first factor equals the market basket price increase (3.6 percent) minus the productivity adjustment (1.1 percent), for a statutory price update of 2.5 percent per year. The second factor equals the year-by-year increase in the volume and intensity assumption from the “factors contributing to growth” model less the ACA growth impact of 0.1 percent.

“Purposely not considered at this time are the potential effects of sustained slower payment increases on provider participation, beneficiary access to care, quality of services, and other factors,” the trustees’ actuaries write. “Similarly, there has been no modeling of the possible effects of future changes in payment mechanisms, delivery systems, and other aspects of health care that could arise in response to the payment limitations and the ACA-directed research activities.”