Medicare's "Serious Financial Status" Reported

On March 25, 2008, the U.S. Department of Health & Human Services issued a press release, entitled "Medicare Trustees Report Shows Serious Financial Status of Medicare Program". The referenced report is entitled "2008 Report of the Boards of the Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds" (PDF, 242 pages).

That Report contains distressing news about Medicare, makes a dire prediction if current trends persist, and calls for immediate action by Congress.

In their annual report, the Medicare Trustees today announced that both the Medicare Hospital Trust Fund and the Supplementary Medical Insurance Trust Fund expenditures are growing faster than the rest of the economy. * * *

The Trustees report that Medicare’s Hospital Insurance (HI) Trust Fund will become insolvent earlier in 2019 than reported last year. HI expenditure growth is estimated to average 7.4 percent each year over the next 10 years, a higher rate than either Gross Domestic Product (GDP) or Consumer Price Index (CPI) growth. * * *

“We need to act quickly and effectively to address Medicare’s fiscal health, including enacting the steps proposed in the President’s budget, which would postpone the insolvency date of the Part A trust fund for ten years,” said Health and Human Services Secretary Mike Leavitt.

“Congress should also act immediately on the smart changes put forward by the Administration after last year’s funding warning, which would allow the program to be modernized and transformed.”

“Although Congress has never allowed a Medicare trust fund to become exhausted, under the current payment structure, a person who is 54 years old today can not be assured that Medicare hospital insurance benefits will be there when he or she turns 65 and first becomes eligible for Medicare,” said Centers for Medicare & Medicaid Services Acting Administrator Kerry Weems.

“That’s why we are already beginning to implement steps to make health care services under Medicare as effective and efficient as possible for beneficiaries.” * * *

The issuance of this Report was noted widely, as by The New York Sun, in its article published on March 26, 2008, entitled "Trustees Issue Medicare, Social Security Warnings", by Martin Crutsinger.

The recommendations contained in the 2008 Medicare Report, along with the 2008 Report about the Social Security Trust Fund for action to be taken by Congress, were noted on the National Public Radio News Blog, in an entry dated March 26, 2008, under the heading "The Campaign Issue That Dare Not Speak Its Name".

Quick, can you name the one issue that is key to the future of every American that sends most politicians (Including the current presidential contenders) fleeing in terror?

Yes, its social security.

As The Associated Press reports "Trustees for the government's two biggest benefit programs warned that Social Security and Medicare were facing 'enormous challenges,' with the threat to Medicare's solvency far more severe." The trustees said unless something is done, the resources in the Social Security trust fund would be depleted by 2041. The reserves in the Medicare trust fund that pays hospital benefits were projected to be wiped out by 2019 - just a little over ten years from now.

Yet Senators Obama, Clinton and McCain have reacted to this alarming news with overwhelming ... silence for the most part. As the Los Angeles Times reports they all "sidestepped the issue." * * *

The Christian Science Monitor reported about the possibilities for Congressional action in its article "Congress in no rush to fix Medicare and Social Security", by Gail Russell Chaddock, published on March 27, 2008.

The message Congress is taking away from the report is that there's still time to build bipartisan consensus for reform.

"I believe that we must get serious about addressing the long-term challenges to Social Security and Medicare," said House majority leader Rep. Steny Hoyer of Maryland, in a statement. "To that end, we must begin to lay the foundation for bipartisan action on this issue in the next Congress...." * * *

"The chances are pretty close to zero of significant legislation enacted this year that makes significant progress on either Social Security or Medicare financing," said Robert Greenstein of the liberal Center on Budget and Policy Priorities, in a briefing with reporters.

He adds that Congress has time to work out a solid, bipartisan reform on Social Security, but that the issues facing Medicare are more challenging.

Recommendations by the Medicare Payment Advisory Commission (MedPAC), including halting "massive overpayments to private insurance companies in the Medicate Advantage program," have been stymied by healthcare industry lobbyists, he says.

Conservative analysts say it is "profoundly irresponsible" for Congress not to take action this year.

"This is not a short-term fall in the stock market. This is serious stuff: The issue is how are we going to come up with $42.9 trillion over the next 75 years to pay for the promises on the books," says Robert Moffit, health policy expert with the Heritage Foundation. * * *

The Heritage Foundation reacted to the 2008 Medicare Report in an article posted on March 26, 2008, entitled "Congress Must Not Ignore the Medicare Trustees' Warning", by Greg D'Angelo and Robert E. Moffit, Ph.D., urging Congress "to get serious about Medicare reform."

As the baby-boomer generation starts retiring and health costs continue to escalate, the Medicare Trustees urge decisive congressional action: "The longer action is delayed, the greater the required adjustments [will be], the larger the burden on future generations, and the more severe the detrimental economic impact on our nation."

The President introduced his Medicare proposal last month in response to the 2007 Medicare funding warning, and the next President will have to propose legislation yet again in 2009.

But Congress does not have to play politics with the Medicare program or wait for presidential action. It can take steps this year to transform Medicare from a costly open-ended entitlement program to a defined-contribution program that would maximize cost control and limit taxpayers' exposure to massive tax increases. * * *

The Heritage Foundation endorsed changes consistent with "two broad policy objectives":

• Make short-term changes compatible with future reform. This could include applying existing Part B rules for income-related subsidies to Part D, raising the enrollees' share of Part B premiums from 25 percent to 30 percent, restructuring Medicare and Medigap cost-sharing, and establishing a modest co-payment for home health benefits. Congress may also want to consider phasing in a higher age of eligibility for Medicare benefits.
  
  
• Move toward a defined-contribution program for the baby-boomer generation. The Medicare program should remain as it is today for current beneficiaries. But, at a certain date, Medicare should be transformed into a defined-contribution system, in which the government contribution for benefits is adjusted for age, income, or health status. In any case, the government contribution should be based on a real market calculation of the price of medical goods and services but capped at a dollar amount each year, just as it is today in the popular and successful Federal Employees Health Benefits Program (FEHBP). While there are a variety of models for such a system, a defined-contribution arrangement would make Medicare costs predictable for seniors and taxpayers alike. * * *
  

The efficacy of the Medicare system and its promised benefits are built into many health coverage plans, as demonstrated by a United States Supreme Court ruling, issued on March 24, 2008, denying certiorari to hear a further appeal in the case AARP v. EEOC (No. 07-662), decided by the Third Circuit Court of Appeals on June 27, 2007.

This ruling is explained in the article entitled "Supreme Court allows employers to coordinate retiree benefits with Medicare", posted on March 24, 2008, by Law.com.

The Supreme Court today let stand a federal policy that allows employers to reduce their health insurance expenses for retired workers once they turn 65 and qualify for Medicare.

The justices turned down an appeal by the 39-million-member AARP to undo a rule that essentially allows employers to treat retirees differently depending on their age.

The rules were put into place by the federal Equal Employment Opportunity Commission, with the support of labor unions and other groups. They worried that employers would greatly reduce or eliminate health benefits for millions of retirees if they could not take Medicare into account when structuring the health benefit packages they voluntarily provide their retired workers. * * *

Given this ruling, likely more health plans will be built around Medicare's promised benefits, thus raising the stakes for retired workers.

Update: 04/05/08:

Professor Gerry Beyer, author of the Wills, Trusts & Estates Prof Blog, noted this post in one of his own, entitled Trustees Report Medicare’s “Serious Financial Status” (04/05/08).