Medicare funding murky despite trustees report

Officials unveiled an optimistic annual report on the financial status of the Medicare and Social Security trust funds last month. But the assumptions about long-term healthcare spending are not likely to become reality.

The report predicts that reductions in Medicare spending under the Patient Protection and Affordable Care Act (PPACA) will extend the solvency of the hospital insurance trust fund for 12 years. That fund, which supports Part A hospital care, won't hit serious financial problems until 2029, instead of in 2017, as projected last year, prior to enactment of reform legislation.

The trustees also anticipate lower outlays for Medicare Part B, reducing spending on physicians and outpatient care.

Gains in productivity have strengthened other sectors of the economy, but most experts are skeptical that similar improvements can be realized for healthcare services, which are labor intensive and in high demand.

There has been "very little productivity growth" in the healthcare sector, according to Richard Foster, chief actuary of the Centers for Medicare and Medicaid Services. He noted at a meeting sponsored by the American Enterprise Institute (AEI) that it will not be feasible for Medicare to pay one-third of the going rate if hospitals and providers fail to improve productivity sufficiently to offset the planned rate cuts.

The economic gains will come, Foster predicted, "only with a major transformational change to the healthcare system."

Reformers look to accountable care organizations, comparative effectiveness research and paying providers based on quality and cost-effectiveness to achieve such transformation. Although these and other pilot programs may improve Medicare, until proven to cut costs, the budget analysts won't credit them with future savings.

An added problem is that the Trustees report analysis assumes that Medicare will pay the highly reduced rates to physicians, as established by the sustainable growth rate formula. Under current law, doctor payments are slated to drop by 23% November 1, and another 6% on January 1. Everyone expects Congress to devise some strategy for covering the higher fees before then.

In June, the legislators eked out a six-month delay in the cuts, but did little to address the larger problem. A 30% reduction in physicians fees is "ludicrous" and would produce clear access problems, according to Gail Wilensky of Project HOPE. But if Medicare has to cover higher rates for doctors, much of the savings calculated by the trustees would disappear.

Republicans also emphasized that the savings from Medicare rate cuts can't be used to fund Medicare and support expanded coverage of the uninsured. While reform advocates acknowledge that Medicare financing remains precarious, they regard the trustees report as evidence for how vital it is to implement PPACA.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.