“The message … has always been the same, which is, at some point, the program is going to face huge financial challenges unless policy makers take action, and unless the health sector finds ways to deliver appropriate care more efficiently to patients,” said Joseph Antos, PhD, a resident scholar in healthcare and retirement policy at the American Enterprise Institute (AEI).
At an AEI briefing Wednesday, Antos, along with Robert Moffit, PhD, a senior fellow at the Heritage Foundation, did highlight several shortcomings of the 2018 Medicare Trustees report such as the lack of independent expert involvement.
This year’s report was signed only by Trump administration officials, noted Moffit. Such reports should be reviewed by independent experts to “instill confidence” in findings, he pointed out.
“The current situation is simply not good public policy,” Moffit stated.
The report, released Tuesday, forecasts for both the Hospital Insurance and Supplementary Medical Insurance trust funds. The 2026 depletion forecast is 3 years earlier than trustees reported in a 2017 analysis.
Paul Spitalnic, chief actuary for the Centers for Medicare and Medicaid Services, said what’s behind the trustees report is “predominately a revenue story.”
Because payroll taxes were significantly lower than anticipated in the 2017 report, there’s been less income feeding into the hospital insurance trust fund, which is one reason the depletion date of the fund has been bumped up. In addition, since certain taxes on Social Security benefits also funnel into the trust fund, and the 2017 tax bill lowered individual tax rates, which had the effect of narrowing the revenue stream, Spitalnic said.
While projections have not “materially changed” over the last 5 years — a 2013 Trustees Report also suggested a 2026 depletion — Spitalnic noted differences between the total projected expenditures for Medicare Part D between 2013 and 2018, which he attributed to a slowdown in hepatitis C virus treatment expenses, and greater reliance on generic drugs.
Antos said the trustees’ supplementary “illustrative” analysis was “somewhat more realistic” than the main findings.
The illustrative example shows that long range costs in the program may be higher if certain cost reduction measures under current law don’t work as intended, Spitalnic explained.
Under the report’s main analysis, Medicare‘s current share of gross domestic product (GDP) is expected to grow from 3.7% in 2017, to 6.2% under current law in 2090, and even higher to 8.9% in 2090, under the “illustrative” scenario.
While the main analysis assumes no changes in current law, the illustrative analysis zeroes in on two current policies that could “problematic,” Antos explained, and one of these is the Medicare Access and CHIP Reauthorization Act (MACRA).
“It’s unreasonable to think that general inflation will be as low as 1% a year in the future,” he said, adding that it’s accepted that healthcare inflation is expected to rise faster than general inflation.
In other words, basing any forecast on those updates remaining unchanged seems unwise, he stressed. And it’s unlikely that Congress will maintain the current system of updates, he noted.
“They’ll change it…. They’ll buckle under the obvious and probably reasonable pressure coming from the physician community [who will argue] that they really can’t live with such modest increases given their likely cost of operation rising much more quickly,” Antos stated.
Another problem area is the productivity adjustments established under the Affordable Care Act (ACA).
While finding ways for the healthcare sector to become more productive sounds good in theory, using a formula that links payment to productivity improvements in the general economy is flawed, Antos said.
“Economy-wide productivity generally has been measured to grow… much faster than health … sector productivity,” he stated. “Yet payments are going to be reduced because of that factor.”
In 2018, economy-wide productivity is estimated to increase around 1.1% per year over the long-term, while hospital productivity has increased by about 0.4 % a year in recent years, and is expected to have “essentially zero” growth over the long term, he explained.
The core issue is one of feasibility, Antos said. Can the health sector find ways to meet the required productivity adjustments? And if it does “will we be able to detect it?,” he stated, expressing skepticism on both fronts.
Moffit cautioned against taking the report out of its proper context. The media and politicians are likely to claim “Medicare trust fund is going bankrupt,” he said. “The [hospital insurance] trust fund hasn’t gone bankrupt in the last half-century, and I can’t imagine that it will go bankrupt in the next half-century.”
“Medicare has serious financial challenges,” Moffit acknowledged. “It’s better to address them sooner, rather than later, and Congress is going to have to come to grips with this.”
Historically, the two main ways of addressing these issues has been to raise payroll taxes or to reduce hospital payments, he noted, but payment reductions are already scheduled under the ACA, so any more cuts seem unlikely.
Moffit said he wants to see Medicare Parts A and B combined, a catastrophic benefit added, the age of eligibility raised, and a requirement that wealthier enrollees pay more for their benefits.
He said he also supports taking the defined contribution approach of Medicare Advantage and expanding it to the entire program.
“The Medicare trustees have done their job,” he stressed. “It’s time for Congress and the White House to do their job.”
But, he added, “I’ll make an iron-clad prediction that, in 2018, nothing will happen.”