Medicare trustees present dire outlook on program's finances

Washington -- Medicare's hospital trust fund could be out of money in less than a decade, and outpatient spending threatens to consume an even larger portion of the gross domestic product, according to those overseeing the program's finances.

Both the physician and hospital portions of the Medicare program are in trouble, according to the 2009 Medicare trustees report, released May 12. The insolvency date for Part A has been moved up two years to 2017. Part B does not face insolvency because it is automatically funded by a combination of general tax revenues and beneficiary premiums. However, it does face rapid growth that will continue to expand faster than the economy as a whole, the report warns.

The rise in Medicare Part B expenditures is estimated to average 5.5% per year through 2013, the trustees said. But this figure assumes that an estimated 21.5% physician pay cut, required by current law for 2010, will go into effect. "Multiple years of significant reductions in physician payments per service are very unlikely to occur before legislative changes intervene," the trustees wrote.

If Congress takes action to prevent the reduction -- as it has with every scheduled cut since 2002 -- the average annual increase in spending will be 8.5% to 9% through 2013, the report said. The nation's GDP, meanwhile, is projected to grow each year by only 4.5%, on average, through 2018.

Still, the costs of inaction on patient access to care would be much greater, said American Medical Association President-elect J. James Rohack, MD. The trustees report shows projected cumulative Medicare physician payment cuts of 38% through 2014.

"These drastic cuts to physicians who care for Medicare patients come at the same time baby boomers begin aging into Medicare in 2011, and a shortage of 85,000 physicians is predicted by 2020," Dr. Rohack said. "Putting Band-Aids on the problem has helped in the short term, but real reform is long overdue."

The AMA and other physician organizations support replacing the payment formula that mandates the upcoming Medicare physician pay cuts with a system that better reflects the cost increases associated with providing outpatient care.

The more immediate financial problem facing the Medicare program is the expected depletion of the Part A trust fund in less than a decade, the trustees report notes. Although the short-range financial status of the hospital fund has not been considered satisfactory since 2003, the outlook has deteriorated further because of the current economic recession.

Seniors bear the costs, too

Taxpayers are not the only ones who are covering any increases in Medicare Part B spending. If Congress prevents physician pay cuts or gives doctors a raise without committing additional money to hold monthly premiums steady, beneficiaries will be expected to pay more to cover the higher costs.

Part B is solvent "only because premiums and general revenue financing are reset every year, requiring seniors and the federal budget to pay more for their care," said Health and Human Services Secretary Kathleen Sebelius. "If health care costs keep going up, our beneficiaries will continue to see their premiums rise at unsustainable rates."

Even without likely congressional action on Medicare physician pay, the basic monthly Part B premium is expected to exceed the $100 mark next year. Seniors with higher incomes, about one-quarter of all beneficiaries, pay higher premiums on a sliding scale.

Exacerbating circumstances for seniors this year is the fact that they won't see an increase in the cost of living adjustment under Social Security for the first time since COLAs were made automatic in 1975, said David Certner, AARP's legislative policy director. Most Medicare enrollees have their Part B premium withheld from their monthly Social Security benefit, so a zero COLA would have a significant negative impact on patients who are signed up for outpatient benefits, he said.

Bolstering calls for reform

Health care organizations once again are citing the dire outlook in the Medicare trustees report as one important reason to pursue major system reforms.

"The message is similar, but this report really puts a sense of urgency to it," Ted Epperly, MD, president of the American Academy of Family Physicians, said of this year's report. "We have a limited amount of time where we can act on this, and I think the report serves as a major stimulus to act on health system reform this year."

AAFP is in favor of reforming the system to boost primary care pay as well as promote prevention and wellness efforts. In addition to backing a pay system overhaul, the AMA supports a variety of Medicare reforms, including establishing a competitive bidding system for Medicare Advantage, placing a greater emphasis on chronic care management and removing the costs of physician-administered drugs from the calculation of the Medicare physician pay formula.

AARP has said any meaningful health system reform should include the creation of a Medicare follow-up care benefit, which would help people safely transition to their homes or another setting after a hospital stay. The group also calls for Medicare to coordinate health care better and prevent unnecessary hospital readmissions.

Although it is projected to cost hundreds of billions of dollars, President Obama said during a May 13 news conference with key lawmakers that a major overhaul of the system needs to happen this year.

"Pressures on Medicare are growing, which only underscores the need for reform," Obama said. "We've got to get it done this year in the House and Senate. There are no excuses. The stars are aligned."

But some lawmakers are wary of repeating what they consider past mistakes. Sen. Charles Grassley (Iowa), the highest-ranking Republican on the Senate Finance Committee, said a government-run public insurance option available to all -- one of the more hotly debated reform issues this year -- would end up paying less to medical professionals and charging more to taxpayers.

In a May 14 speech on the Senate floor, Grassley cited Medicare's financing woes as reason enough not to create another entitlement program.

"We need to improve quality, access and affordability," he said. "But adding another unsustainable government-run health insurance plan into our health care system is not the answer. 'We can't afford what we already have, so let's add more'? That doesn't make much sense."