Saturday, May 21, 2011


Last week’s startlingly gloomy annual report from the Trustees of the Medicare Trust Funds lent new urgency to the need for further Medicare expenditure reforms. Whether Washington DC politicians will respond with more than sound bites is less likely.

The Trustees’ report shows a dramatic deterioration—even based on the most optimistic assumptions— in the financial position of the Part A Trust Fund, along with expectations of continued faster-than-GDP growth for Parts B and D.

Compared with the prior year’s Trustees’ report, which forecast that the Part A Fund would run out of money in 2029, the latest report estimates that the fund will dry up in 2024—five years sooner. The reasons for the sudden acceleration of financial disaster include a significant drop in revenues from taxes on workers’ earnings due to the ongoing recession, and new forecasts of longer life spans for beneficiaries.

The report also includes new forecasts for Medicare Part B and Part D, which operate on a pay-as-you-go basis using mixes of beneficiary premiums and general federal monies. While Parts B and D will not exhaust their respective trust funds, they will have increasing impacts on the deficit as their federal subsidies are forced to increase. Medicare B costs are projected to grow at a 4.7 percent annual rate (based on current law), and Medicare D at a 9.7 percent rate through 2020, compared with forecasts of 5.2 percent annual GDP growth.

Unfortunately, the preceding estimates are optimistic ones, and assume both the imposition of the physician rate cuts required by the 1997 Balanced Budget Act, and the implementation of all cost controls included in the Affordable Care Act.

No-one, and obviously not the Medicare Trustees, believes that Congress will allow the impending 30 percent slashing of physician fees to take place. Far more probable is that Congress will—as it has every year since 2003—choose to duck what would otherwise be a draconian reduction, one that would lead to a wholesale exodus of doctors from Medicare. Assuming that Congressional behavior does not suddenly change, Part B cost increases will jump to a 7.5 percent annual rate, not the wildly optimistic 4.7 percent.

Almost as unlikely is that the Part A cost controls included in the Affordable Care Act will all be implemented. The primary mechanism—the Independent Payment Advisory Board—is already under fierce political fire from Republicans. Even if the IPAB survives, both its appointees and its recommendations depend on approvals by a Congress that has shown no willingness to make difficult cost-cutting decisions.

And that’s the problem. House Budget Committee Chair Paul Ryan’s proposal for shifting much more of Medicare’s costs to beneficiaries has been disowned by his Republican colleagues—and given Democrats a huge political gift. The IPAB is under fire and could be dumped. Earlier, more nuanced proposals, like those from the co-chairs of the 1999 Bipartisan Medicare Commission, have died for lack of political support. With an election beginning to loom, and both parties looking to the senior vote, the chances of responsible bipartisan solutions seem far, far, away. Meanwhile, Part A and the federal deficit are rushing towards their respective precipices. It’s political bankruptcy in every sense.


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