NCPA - National Center for Policy Analysis

Trustees Issue Warnings on Medicare, but Make No Changes to Solvency Projections

April 25, 2012

This week, trustees of the Medicare program forecast increased financial troubles as a result of an aging population and rising health care costs, increasing the visibility of an issue that is already proving divisive in the 2012 presidential and Congressional campaigns, says Kaiser Health News.

  • Overall, the outlook for the Medicare program which covers nearly 50 million elderly and disabled people was only slightly worse than findings from last year.
  • Once again, trustees forecast that Medicare's hospital fund would begin to run out of money beginning in 2024.
  • The report emphasized that Medicare costs in both the short term and long term would rise higher than previously reported, but that these costs would be offset by 2 percent cuts to the program agreed to in last year's deficit reduction agreement, unless Congress passes an alternative cost-cutting plan.
  • The trustees stressed the need to look beyond the exhaustion date for Medicare to the toll health care costs are already taking.

In a politically charged campaign season, both sides attempted to use the report to their advantage.  Treasury Secretary Tim Geithner, who is the program's managing trustee, said the 2010 health care law had strengthened Medicare by beginning to rein in costs.

Tom Saving, professor of economics at Texas A&M University and a former trustee, and John Goodman, president of the National Center for Policy Analysis, painted a more dire scenario.  The trustees must base their projections on current law, they said, but it is unrealistic to think that Congress will allow reductions to providers to stand in the long term, or that changes to reimbursements based on better performance and coordination of care will help much with costs.

The trustees based their findings on demonstration projects in the law, and Goodman says there is no solid evidence that they will save money.  "All this about pay-for-performance and coordinated care and integrated care, none of it is working," says Goodman.  "They are trying all this out, and there's no reason to believe there will be large savings here."

Medicare's Chief Actuary Richard S. Foster also said he was skeptical that some projected savings, from provider cuts to improved productivity, would materialize.

Source: Marilyn Werber Serafini and Phil Galewitz, "Trustees Issue Warnings on Medicare, but Make No Changes to Solvency Projections," Kaiser Health News, April 23, 2012.

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