Medicare insolvency due to high MA payments

June 1, 2009

Private fee-for-service plans are under scruntiny as perhaps being partly responsible for skyrocketing Medicare expenditures.

WASHINGTON, D.C. - The recent report on the deteriorating financial condition of the Medicare trust funds heightens the sense of urgency in overhauling the nation's high-cost but inefficient healthcare system. The Medicare hospital fund now faces depletion by 2017, two years earlier than the previous projection. The nation's economic decline has reduced tax revenues to support the program, while healthcare spending continues to climb.

Medicare expenditures are expected to increase at a faster pace than either workers' earnings or the overall economy, with outlays rising from 3.2% of gross domestic product (GDP) last year to 11.4% by 2083. These gloomy projections reflect continued growth in the volume and intensity of healthcare services over the next 75 years; an increase in the number of beneficiaries as the baby boomers begin to hit age 65; and the addition of the Part D prescription drug program in 2004.

MA UNDER SCRUTINY

The Medicare actuaries predict a decline in high-cost private-FFS plans (PFFS) over the next few years due to the need to meet provider network requirements. The total MA penetration rate thus no longer is projected to rise to 31% of all Medicare beneficiaries, but to level off at 24% beginning next year.

Further changes in benchmark calculations and payment rates could reduce growth even further. At a briefing on the trustees report at the American Enterprise Institute, HHS Chief Actuary Richard Foster observed that a shift to competitive bidding or alteration in statutory benchmarks would find some MA plans more efficient than FFS. But many plans in rural areas would not be competitive. Former House Ways & Means Committee Chairman Bill Thomas noted that MA plans in all regions may not be cost effective.

"We need to ratchet it down," Thomas said about the MA program, "not kill it off."