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  • Medicare's Worsening Finances: The Other Shoe Drops

    A week ago, the Medicare Trustees issued their annual report, which showed that the program is on the fact track to insolvency. The 2011 analysis projected that the Hospital Insurance Trust Fund (which funds Medicare Part A) will be insolvent in 2024, and the program’s long-term unfunded obligations—promised benefits that are not paid for—amount to $24.6 trillion. Heritage noted the highlights. Page 266 of the official report included a note from Richard Foster, the Medicare Actuary, who said the Trustees’ financial projections “do not represent a reasonable expectation for actual program operations.”

    Late Friday afternoon, the Office of the Actuary (OACT) released a separate analysis detailing why the Trustees’ report is unrealistic. While the timing was curious, the reasoning is straightforward. Because the Trustees use assumptions based on current law, OACT warned, “the projections…should not be interpreted as our best expectation of actual Medicare financial operations in the future but rather as illustrations of the very favorable impact of permanently slower growth in health care costs, if such slower growth can be achieved.”

    The OACT analysis projected a dire future:

    Faster Spending; Bigger Debt. OACT cautions that Medicare spending will reach 4.31 percent of gross domestic product (GDP) in 2020, compared to the 3.99 percent predicted by the Trustees. The difference over the long term is even more profound: By 2080, when the Trustees say Medicare spending would reach 6.25 percent of GDP under current law, the Actuaries say it will rise to 10.36 percent of GDP. Based on their analysis of the data, Republican Senate Budget Committee staff show that Medicare’s real long-term unfunded liability (over 75 years) would reach $36.8 trillion, not $24.6 trillion

    Reduced Access or Higher Cost. The big differences between the conclusions of the Trustees and the Office of the Actuary are rooted in the severe statutory cuts to Medicare provider reimbursement that are already in current law under Obamacare. The Actuaries and many independent analysts believe Obamacare’s payment cuts to providers in Medicare would harm seniors’ access to health care if Congress allows them to go into effect.

    Provider Payment Crunch. First, the flawed Sustainable Growth Rate (SGR) formula calls for scheduled reductions to physician payments, which in 2012 would cut physician reimbursement by a stunning 30 percent. The Trustees assume the cuts will occur, but the Actuaries warn that if they did, Medicare payment rates would fall to 57 percent of private insurance payment rates in 2012. That’s in the neighborhood of Medicaid, the government’s biggest welfare program, which physicians are fleeing in droves. If the SGR formula was applied consistently over the long-term horizon, rates would fall as low as 27 percent of private insurance payments by 2085—half of what Medicaid currently pays. Congress has delayed these Medicare physician payment cuts continually since 2003 to avoid these harmful effects, and it is reasonable to assume they will continue to do so.

    The Medicare Actuaries also question the feasibility of Obamacare’s “productivity adjustments” to Medicare’s fee-for-service program, which would reduce reimbursement for hospitals and other providers based on economy-wide productivity gains. OACT explains,

    Based on the historical evidence of health sector productivity gains, the labor-intensive nature of health care services, and presumed limits on the extent of current excess costs and waste that could be removed from the system, actual health provider productivity is very unlikely to achieve improvements equal to the economy as a whole over sustained periods.

    Obamacare’s across-the-board cuts would cause 15 percent of hospitals, skilled nursing facilities, and home health agencies to become unprofitable by 2019. This number would climb to 25 percent in 2030 and 40 percent by 2050.

    The message is clear: Congress must act now to save Medicare for future generations. The Heritage Foundation’s Saving the American Dream proposal explains how best to restore long-term solvency to the Medicare program while improving it for those it serves.

    Co-authored by Robert E. Moffit, Ph.D.

    Posted in Obamacare [slideshow_deploy]

    7 Responses to Medicare's Worsening Finances: The Other Shoe Drops

    1. George Colgrove, VA says:

      What seems to becoming so obvious to us all outside the beltway is still being perceived as perfectly fine to those inside.

      It is time health insurance becomes a private sector enterprise in its entirety! No more federal involvement. Lets enhance competition, allow profit and get on with being healthy because we want to! THe feds DO NOT KNOW how to run these programs. They are hurting this countries future and are enslaving future generations with paying for their failures. The Medics' cannot be fixed. It is time we recognize that as soon as we can.

    2. Larry Tampa Fl says:

      Make the Gov. agency and departments and any others that diped into the funds to pay for other special interest projects repay the funds . This is BS they used the funds for everything you can think of other than what it was intended for AND NOW you want to cut social security,medicare, and medicade..These crooks in congress have all but distroyed what it took over 250 years to build…The sooner WE THE PEOPLE get rid of each and everyone of of anyone who has Sit in power for more than the past two years and replace them with WE the People… not the same old BS the better off WE will BE….

    3. West Texan says:

      Well said George. Healthcare is a paid service and not a right. I agree it's better handled through a free market. Providing a needy safety net is up to state and local governments. A portion of my property tax already goes toward indigent care. The federal government should never have interfered or been involved with health care policy in the first place. Federal taxes need to be drastically cut allowing states to better serve their residents. SS and Medicare are domestic programs that eventually need to be phased out while states should develop plans of their own on how best to address such concerns.

    4. Bobbie says:

      Agree, George! Although I do believe the government is well aware of the consequences to their actions or they would've made corrections years ago and heed today's warning. But every single financial problem and crisis in this country, was and still is under the control of the government at all levels. For the sake of human decency, we need accountability especially in all areas of our health!

      For everywhere we need, expect and can depend on accountability is no where government proves to be. PRIVATE SECTOR/FREE MARKET!

    5. Pingback: Medicare’s Worsening Finances: The Other Shoe Drops «

    6. Frank Norton, San Fr says:

      Government promises to the Americn people in Medicare, Social Security , etc., should be covered by a government , of, by and for the people. Government makes billions of dollars yearly and is capable of making trillions more from lands, mineral rights, and buildings. Perhaps if politicans did not add so many none citizens who have never paid into these social programs, there would not be such a deficit problem today.

    7. Pingback: Bipartisan Rejection of Obamacare’s IPAB Rationing Board GrowsThe Foundry: Conservative Policy News Blog from The Heritage Foundation

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