Trustees: Control costs to retain quality, availability
Government officials and policy experts again underscored the urgency for system reforms to rein in rising healthcare costs as Medicare’s trustees delivered a mixed report card last week.
In the short term, Medicare’s hospital insurance trust fund is projected to remain solvent and cover benefits through 2024, the same projection the trustees reported last year. Scheduled hospital insurance tax and premium income would be sufficient to cover 87% of estimated hospital trust fund costs in 2024 and 69% by 2086, according to the 2012 report.
The trustees concluded that although the Patient Protection and Affordable Care Act makes changes to Medicare that improve the program’s financial outlook, there is a “strong likelihood that certain of these changes will not be viable in the long range.” For instance, annual price updates for most nonphysician services will be adjusted downward annually because of productivity growth in the economy. But the trustees warn that most healthcare providers cannot improve their productivity to this degree because healthcare services are so labor-intensive.
“There’s some concern among providers that they may not be able to work with the provisions of the health reform law in terms of productivity adjustments and sequestration,” said Juliette Cubanski, associate director of the program on Medicare policy at the Kaiser Family Foundation. Cubanski also said there’s an expectation that hospital utilization will increase, but that sequestration will cut provider payments by 2%. “It elevates the importance in being active participants in the delivery of health system reforms and being an active participant in adopting value-based purchasing—and coming to the table with new ideas.”
Medicare’s trustees said in the report they assume various cost-reduction measures, particularly productivity adjustments, will occur as the Affordable Care Act requires. But if the healthcare sector does not shift to more efficient models of care delivery, and if provider payment rates from commercial insurers continue to follow the same process, then both the availability and quality of care that Medicare beneficiaries receive relative to those with private insurance will fall and add pressure to change Medicare’s payment rates.
In 2011, Medicare covered 48.7 million people, including about 40 million aged 65 and older and about 8 million Americans with disabilities. Expenditures for the program in 2011 totaled $549.1 billion.
The trustees’ report showed that Medicare’s supplemental insurance fund—which covers parts B and D—is balanced, with beneficiary
premiums and general revenue financing set to cover expected costs.
Meanwhile, the long-term outlook for the hospital fund is darker. Because of changes in analysts’ cost-projection methods, Medicare’s hospital insurance trust fund has a long-range actuarial deficit equal to 1.35% of taxable payroll, compared with the 0.79% figure reported in 2011.
The report explains that the changes raised nearterm costs and the long-range rate of increase in both the average hospital insurance trust fund and the supplemental medical insurance part B costs per beneficiary. But the reason the short-term solvency date hasn’t changed is because those higher costs were offset during 2013-21 due to the 2% reduction in expenditures that last year’s Budget Control Act established and that are scheduled to take effect through sequestration next January.
“In the long run, they talk about what percentage of payroll would pay 100% of covered benefits in the 75th year,” said Don Moran, president of the Moran Co., an Arlington, Va.-based healthcare research and consulting firm. “It went from 0.79% of payroll to 1.35% of payroll, meaning the longer-term situation is deteriorating a little faster,” he added.
Treasury Secretary Tim Geithner, one of the program’s trustees, said in a news conference that one of the most important things to do to preserve Medicare is “to implement the Affordable Care Act fully and effectively.”
On the same day the trustees released their report, the CMS announced it expects the Affordable Care Act to produce more than $200 billion in savings through 2016 because of measures that include ending excessive payments to insurers that offer Medicare Advantage plans and through implementing anti-fraud policies.
The report assumes the 31% reduction in Medicare payment rates to physicians will take effect in 2013, said Robert Reischauer, a public trustee for the Medicare and Social Security trust funds.