The 2014 Trustees Report was released on Monday, July 28th. The Center for Medicare and Medicaid Services (CMS) press release paints a rosy picture, but fails to discuss the bad news that is hidden in plain sight. According to the cheerleaders at CMS, the health of the Medicare Hospital Insurance Trust Fund has improved since last year. The Trust Fund purportedly will remain solvent until 2030 — four years longer than projected in the 2013 Trustees’ Report. The press release partially credits the 2010 landmark law, the Patient Protection and Affordable Care Act (ACA) with controlling the growth of Medicare spending.
The Trustees Report is supposed to project future Medicare spending based on current law. But, that also means the official projection includes provisions meant to slow spending growth that the Trustees know are unlikely to occur. In years past, the Trustees tended to ignore these uncomfortable facts. Around 2010 the Office of the Actuary at CMS took the unprecedented step of producing an Alternative Scenario report explaining that the assumptions in the Trustees Report were unrealistic, and the projection were most assuredly wrong. That raised eyebrows in the policy world. This year, the alternative scenarios (i.e. conditions that are more likely to occur) crept up from the appendix (at the back) and landed uncomfortable on page 2, with the authors explaining:
In last year’s report…the projections were based on current law; that is, they assumed that laws on the books would be implemented and adhered to with respect to scheduled taxes, premium revenues, and payments to providers and health plans…
Current law requires CMS to implement a reduction in Medicare payment rates for physician services of almost 21 percent in April 2015. However, it is a virtual certainty that lawmakers will override this reduction as they have every year beginning with 2003.
If you look at what the Trustees actually believe will happen, the Medicare Trust Fund’s financial future doesn’t look so rosy!
An excerpt from the report explains why:
…as the substantial differences among the Trustees’ projected baseline, current-law, and illustrative alternative projections demonstrate, Medicare’s actual future costs are highly uncertain for reasons apart from the inherent difficulty in projecting health care cost growth over time. Because the physician payment reduction required by current law has been overridden for 12 consecutive years, the Trustees decided for the 2014 report to emphasize projections that reflect the current practice of modest payment increases in the physician fee schedule. These projections do not represent either a policy recommendation or a prediction of legislative outcomes. Nevertheless, the Board recommends that readers interpret the projected baseline estimates in the report as the result of the outcomes that would be experienced if the productivity adjustments and IPAB measures in the Affordable Care Act could be sustained in the long range under the Trustees’ economic and demographic assumptions.
Today Medicare consumes about 3.5% of GDP. If the sustainable growth rate provisions actually occur (i.e. physician and hospital payment reductions), Medicare will grow to consume only 5.6% of GPD in 2040, and 6.3% of GPD in 2088. If other cost-saving measures also fail to materialize, the proportion of the economy spent on Medicare will rise to 8.4% in 2088.
So, if you assume the Medicare physician fee cuts will not take place; if you assume the Independent Payment Advisory Board will not be allowed to gut Medicare reimbursements; if you assume the productivity improvements that are supposed to slow Medicare spending but have failed to work, the percentage of GDP consumed by Medicare in the coming years is one-third higher than the projection under current law.
This is discussed in greater detail in the Trustees Report, the Alternative Scenario report. However, the link was not working when this was written.
Most striking thing about the Medicare Trustees Report, even the best-case scenario looks pretty bad!
For additional information on what the Trustees Report says on disability see the NCPA Retirement Blog.