Medicare Part A will run out of funds in 8 years, Medicare trustee report says

The Medicare trust fund that pays for Part A hospital care is expected to run out of money by 2026, three years earlier than projected last year, according to the Medicare Board of Trustees report released Tuesday.

Federal Hospital Insurance Trust Fund income is projected to be lower than last year due to decreases in payroll taxes attributed to lower wages for 2017, smaller levels of gross domestic product and less income from the taxation of Social Security benefits as a result of recent legislation. 

As revenues have decreased, expenditures are projected to be slightly higher than last year's estimates, mostly due to higher-than-expected spending in 2017, legislation that increased hospital spending and higher Medicare Advantage payments, the trustees' report said.

Total expenditures in the hospital trust fund were $710.2 billion in 2017 and total income was $705.1 billion.

As in past years, trustees have determined that the hospital trust fund is not adequately financed over the next 10 years. Trustees project deficits in future years until the trust fund becomes depleted in 2026.

The trustees are issuing to President Trump a mandated funding warning because this is the second year they have projected that Medicare's outlays will exceed by 45 percent its financing sources within seven years. By law, the president must submit to Congress proposed legislation to respond to the warning within 15 days after the submission of the fiscal year 2020 budget. Congress is then required to consider the legislation on an expedited basis, the report said.

The Federal Hospital Insurance Trust Fund covers Medicare Part A to pay for hospital, home health services following hospital stays, skilled nursing facilities and hospice care.

Trustees also oversee the Supplementary Medical Insurance Trust Fund that consists of Medicare Parts B covering physician and outpatient care and Part D for prescription drugs.

The report shows Part D spending projections are lower than what was projected last year.

This is due to higher manufacturer rebates, a decline in spending for Hepatitis C drugs and a slowdown in spending growth for diabetes drugs, according to the Centers for Medicare and Medicaid Services.

Part B and D costs have averaged annual growth of 5.5 and 8.5 percent respectively over the past five years, as compared to 3.7 percent growth in the gross domestic product.

However, the Supplementary Medical Insurance Trust Fund is expected to be adequately funded over the next 10 years and beyond because premium income and general revenue income for Parts B and D are reset each year to cover expected costs, the report said.

Total Medicare expenditures were $710 billion in 2017. Trustees project that expenditures will increase in future years at a faster pace than either workers' earnings or the economy overall.

Future physician pay is threatened by payment updates put in place by the Affordable Care Act and MACRA, according to the report.

The Affordable Care Act contains 165 provisions to reduce cost, increase revenue and initiate new care delivery methods, the report said.

Medicare is looking at additional payments of $500 million per year for physicians who participate in MIPS, and a 5-percent annual bonus for physicians in the advanced alternative payment model of MACRA. These payments are scheduled to expire in 2025, when physicians will face a significant payment reduction.

Should there be unfavorable economic conditions such as high inflation, Medicare payments to physicians will not keep pace with the average rate of their cost increases, the report said. 

The gap will continue to widen, the trustees said, to the point that by 2048 physician payment rates under current law will become lower than what these providers would have been paid under the sustainable growth rate formula that MACRA replaced.

"Absent a change in the delivery system or level of update by subsequent legislation, access to Medicare-participating physicians may become a significant issue in the long-term under current law," trustees said.

They recommend the consideration of reforms to prevent the widening of this gap.

If the health sector cannot transition to more efficient models of care delivery and if provider reimbursement rates paid by commercial insurers continue to be based on the same negotiated processes used to date, the availability and quality of healthcare received by Medicare beneficiaries will fall over time, trustees said.

CMS said President Donald Trump's 2019 budget will strengthen the fiscal integrity of the Medicare program. 

CMS has introduced a number of initiatives, including its 2019 proposed rules to create a patient-driven healthcare system with greater price transparency and interoperability. It has also increased choice in Medicare Advantage and beneficiaries will have access to new benefits in 2019. 

House Committee on Ways and Means Ranking Member Richard Neal, a Democrat, said of the report "With their repeated efforts to sabotage the nation's healthcare system, including their irresponsible tax law, congressional Republicans and President Trump are purposefully running Medicare into the ground."

Lyndean Brick, CEO of healthcare consultant The Advis Group, said the news wasn't a surprise due to the costs associated with an aging population and pharmaceuticals.

Medicare needs to be protected through better end-of-life planning, reimbursement for palliative care, the loosening of rules to let more procedures be done in lower cost settings such as ambulatory surgery centers and the elimination of the three-day hospitalization stay requirement before utilization of a skilled nursing facility, she said.

Medicare Trustees include Health and Human Services Secretary Alex M. Azar; Treasury Secretary and Managing Trustee Steven Mnuchin; Labor Secretary Alexander Acosta; Acting Social Security Commissioner Nancy A. Berryhill and Secretary CMS Administrator Seema Verma.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com