5 Key Facts Must Inform the Medicare Reform Debate
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5 Key Facts Must Inform the Medicare Reform Debate

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April 26, 2012

Statement of Howard Bedlin, NCOA Vice President for Public Policy and Advocacy, on the 2012 Medicare Trustees Report

The April 23 release of the Medicare Trustees Report provides an important opportunity to better understand the challenges we face in strengthening and improving Medicare for the future. Although we are pleased that the Trustees’ Medicare projections have stabilized—with the Part A shortfall projected to 2024, the same as last year—we recognize that we must take additional steps to further reduce Medicare cost growth.

We need to move beyond political spin and hyperbole to focus on the facts so that we can make informed, rational decisions about Medicare’s future. As former Senator Daniel Patrick Moynihan said: “Everyone is entitled to his own opinions, but not his own facts.”

Below are 5 key facts that we believe are essential to understand as we move forward:

1. Medicare “solvency” only applies to Part A Hospital Insurance (HI) and can be misleading.

There are four parts to the Medicare program (A, B, C, and D). Reports on solvency only apply to Part A Hospital Insurance (HI). According to a November 2011 Fact Sheet by the nonpartisan Kaiser Family Foundation (KFF): “Part A covers inpatient hospital stays, skilled nursing facility stays, home health visits (also covered under Part B), and hospice care, and accounts for 31% of benefit spending in 2011.” The Part B and Part D accounts, under the Supplemental Medical Insurance (SMI) fund, are guaranteed to remain in balance for all future years because of automatic increases in general revenue and premium contributions.

It is simply untrue to state that Medicare will be “insolvent,” “bankrupt,” or “go broke” in 2024. First, such a claim would apply to only one of the program’s four parts, representing only one-third of Medicare spending. Second, according the Trustees Report, 87% of Part A benefits could still be paid for in 2024. It is clearer and more accurate to state that in 2024 there will be a shortfall in the Medicare Part A Hospital Insurance Trust Fund and full benefits will not be able to be paid that year.

2. The Trustees’ projections on the Medicare Part A shortfall have varied widely over the past 40 years, and Congress has always taken action to ensure that the program continues to meet its obligations.

According to the Congressional Research Service: “Almost from its inception, the HI trust fund has faced a projected shortfall.” In 1970, for example, the Trustees reported that the Trust Fund would fall short in just two years. HI shortfall projections have ranged from four to 28 years since 1990, with the current projection falling in the middle of the spectrum. “Congress has never allowed the HI Trust Fund to be depleted.” [Trustees Report page 28] Thus, the Part A Trust Fund has never run out of money to meet its obligations and, in our view, it never will.

3. Growth in Medicare spending per person is not out of control and has—and will likely continue to be—below that of private insurance.

According to the Trustees Report: “Over long historical periods, average, demographically adjusted, per capita growth rates for common benefits have historically been somewhat lower for Medicare than for private health insurance.” [Page 215] According to the November 2011 the KFF Fact Sheet: “Between 2010 and 2019, Medicare spending per capita is projected to grow at 3.5% annually, nearly two percentage points slower than private health insurance on a per person basis, and at about the same rate as the economy.” In fact, according to the Trustees Report, over the next five years (2012-2017), average per beneficiary HI costs are projected to grow by only 1.3% per year [see Table V.D1. on page 223]. Additionally: “Trustees project that HI income will grow faster than expenditures through 2018.” [Page 27]

These projections are good news for the future of the Part A Trust Fund. These estimates are not influenced by the legitimate concerns raised in the report about potentially inaccurate projections due to almost certain increases in physician payment Part B spending. These data reinforce our view that the real problem we face is not Medicare spending growth, but overall health care sector cost growth, and that our primary focus should be on reducing costs throughout the entire system.

4. The Affordable Care Act (ACA) is projected to reduce the future rate of growth in Medicare spending and delay the Part A shortfall by eight years.

But for the ACA, the projected Part A shortfall would occur in 2016, not 2024. Chief Actuary Richard Foster stated in testimony before the House Budget Committee in February: “Medicare expenditures are projected to increase at a much lower rate than usual during 2012 through 2020.”

The health reform law made major strides to rein in Medicare spending—without cutting basic benefits or increasing out-of-pocket costs for the vast majority of beneficiaries. The discussion of the ACA on page 47 of the Trustees Report further supports our view that provisions in the law took major steps to protect and strengthen Medicare and should not be repealed.

5. Medicare beneficiaries currently spend a substantial portion of their incomes out-of-pocket on health services.

According to the KFF: “Seniors consistently spend a larger share of their income out of pocket on health care than younger people.” In fact, Medicare households spend three times more as a percent of income out-of-pocket for health care compared to non-Medicare households—14.7% vs. 4.9%. This is attributable to lower average household budgets overall ($30,818 vs. $49,641 in 2010) and higher average health care spending among Medicare households than non-Medicare households ($4,527 vs. $2,450 in 2010).

KFF has also reported that median out-of-pocket costs for Medicare beneficiaries as a share of income increased from 12% in 1997 to an estimated 19% in 2011, and are projected to increase to 26% in 2020 under current law. In 2006, one in four beneficiaries spent 30% or more of their income on health expenses, and one in 10 spent more than half. The financial burden is highest for beneficiaries who are older, those in relatively poor health, and those with low or modest incomes. These percentages are also likely to increase significantly under current law. Moreover, current Medicare low-income protections are seriously flawed and much less generous than for those under age 65.   

These 5 facts clarify the real challenges we face as we seek to protect and strengthen Medicare for the future. In June, NCOA will become chair of the 68-member Leadership Council of Aging Organizations coalition for one year. Protecting and strengthening the Medicare program will be a top priority during our term.

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