Medicare Compliance & Reimbursement

The Medicare Part A Hospital Insurance Trust Fund will become insolvent in 2026, four years earlier than projected last year, the Medicare trustees reported March 17. The culprits: 2002 payroll tax revenues that were 4 percent below expectations, and hospital inpatient expenses 2 percent above expectations, primarily due to more admissions and more complex cases. Rep. Pete Stark (D-CA) counseled against overreacting, pointing out that the fund’s 23 remaining years of solvency was still the third-best projection in history. However, the fund will begin spending more than it takes in through payroll taxes in 2013, three years earlier than projected last year. And because assets are invested in Treasury securities, it is this earlier date that marks when the government will have to raise taxes or cut spending, either in Medicare or other areas.

The trustees, four administration officials and two presidentially appointed public representatives, also said that the declining ratio of workers to retirees would threaten the fund’s integrity over the long term. Today, there are about four workers for every retiree, but by 2077 there will be only two.

The trustees said expenses for Medicare Part B, which covers physician and hospital outpatient expenses, are growing rapidly, rising over 11 percent in 2002 alone. They project that overall Medicare costs will triple in the next 75 years, increasing from 2.6 percent of gross domestic product, to 5.3 percent in 2035 and 9.3 percent in 2077.

If Medicare consumed 9.3 percent of GDP today, it would consume half the federal budget, Congressional Budget Office Director Douglas Holtz- Eakin said in March 20 testimony to the Senate Special Committee on Aging.

So What Now?

Health and Human Services Secretary Tommy Thompson, a trustee, reacted to the report by declaring, “The time has come to modernize and improve the Medicare program,” a statement that was echoed by several Hill Republicans.

The report could provide a boost for President Bush’s efforts to fundamentally overhaul Medicare. However, by emphasizing the magnitude of the nation’s future health needs, it also potentially provides ammunition for those who view the president’s proposed tax cuts as fiscally profligate.

The Center on Budget and Policy Priorities, a liberal-leaning think tank, said March 17 that the administration’s tax agenda would cost more than twice as much over 75 years, in present value terms, as the HI trust fund shortfall identified by the trustees.

Moreover, many of the potential moneysavers the administration proposes in its Enhanced Medicare private-plan coverage — such as promoting preventive care and combining the hospital and physician deductibles — could also be done in traditional fee-for-service Medicare. Indeed, House Energy and Commerce Committee chair Billy Tauzin (R-LA) has called for beefed up preventive benefits, as well as catastrophic coverage, to be available to beneficiaries who retain FFS coverage.

The administration believes that competing private plans, more innovative and nimble than FFS’s administered-price system, will save money over the long run. But Thompson and Centers for Medicare & Medicaid Services Administrator Tom Scully are still having trouble assuring some prominent Republicans that preferred provider organizations and private FFS plans will be willing to cover beneficiaries everywhere, including rural areas.

At the Aging panel hearing, Sen. Orrin Hatch (R-UT) said that the vast majority of participants in CMS’ Medicare PPO demonstration are in counties that also have Medicare+Choice managed care plans, and he asked Scully how much it would cost to induce PPOs to cover rural states like Utah. Scully replied that CMS’ actuaries have determined that PPOs could offer Medicare benefits on a widespread basis at a slightly lower premium than in FFS. But he suggested that CBO did not necessarily agree; later, Holtz-Eakin warned that, to the extent that PPOs in the demo have located only in more advantageous places, the demonstration would not be representative of how plans would work nationwide.

Scully and Sen. John Breaux (D-LA) both said that the Federal Employees Health Benefits Program, which the Bush proposal uses as a model, covers federal employees in the most rural counties.