by Art Kelly | 5/1/2012
The Annual Report of the Medicare Trustees states that the program faces serious short-range and long-range actuarial problems--and the problems are actually worse than stated.
Last week's issue of this newsletter reported that the Trustees determined that Social Security has "worsened significantly" in the last year and cannot be sustained without changes.
On Medicare, the Trustees reiterated in their summary, "For the sixth consecutive year, the Social Security Act requires that the Trustees issue a Medicare funding warning." They said:
"The Hospital Insurance (HI) Trust Fund again fails the test of short-range financial adequacy, as projected assets are already below one year's projected expenditures and are expected to continue declining.
"The fund also continues to fail the long-range test of close actuarial balance. The Trustees project that the HI Trust Fund will pay out more in hospital benefits and other expenditures than it receives in income in all future years, as it has since 2008. The projected date of HI Trust Fund exhaustion is 2024…"
And that's just the beginning of the bad news. There are two factors elements that make the Medicare problems even worse:
1. As with Social Security, the Trustees maintain the fiction that the IOUs in the Medicare Trust Fund are assets that can be used to pay benefits. But the White House Office of Management and Budget (OMB) has been very clear that the trust funds are just bookkeeping devices and contain no real assets.
The only way for the HI Trust Fund to make it to 2024 is for Congress to pay back the money it borrowed to finance the general operations of government. To do that, it will have to raise taxes, borrow more money from the public, or cut other federal spending.
As it becomes increasingly difficult to do this, the cries will intensify for "entitlement reform," code words for cutting benefits.
2. The Report is based the false premise that medical costs will be lower than they are likely to be. The Trustees acknowledge, "The report notes that sustaining these payment reductions indefinitely will require unprecedented efficiency-enhancing innovations in health care payment and delivery systems that are by no means certain."
And the two public trustees, Robert Reischauer and Charles Blahous III, re-emphasized this in their own message: "This year's report, like previous reports, contains warnings that future Medicare costs are likely to be underestimated in the report's intermediate projections."
David Moran of Reuters said the Report is based "on a number of financial and political assumptions that may prove unrealistic."
The Report contains so many dubious assumptions, David Hogberg in Investors Business Daily wrote, "Medicare Trustees Don't Believe Their Own Report." He cited parts of the Report which admitted it was based on "very uncertain cost savings" and that "actual future costs of Medicare are likely to exceed those shown by the current-law projections."
And N.C. Aizenman of the Washington Post wrote that, in a letter attached to the back of the Medicare Report, Richard Foster, Chief Actuary for the Center for Medicare and Medicaid Services (CMS), warned "that the program's true long-term prospects are more dire than projected."
The complete Medicare Report is online at http://tinyurl.com/d47cr7w
The complete Social Security Report is online at http://tinyurl.com/ce9rb6n
Instead of cutting Medicare benefits, here's what can be done, which is similar to the remedies for the ills facing Social Security:
1. Increase the eligibility age for Medicare (and Social Security) to age 70 with provisions for earlier eligibility if medical circumstances require it. But most persons between 65 and 70 are very much capable of working full time and covered by health insurance at work or, if indigent, by Medicaid.
Five more years of paying Medicare payroll taxes and five years less of Medicare services will help the financial health of the program.
2. Means test Medicare benefits by requiring very high-income seniors to satisfy a large annual deductible before being able to obtain benefits. The program simply does not have the financial ability to continue to pay for the medical care of persons who have substantial incomes.
There are other proposals that have been suggested and could be utilized in conjunction with the increase in eligibility and means testing. One promising idea, by Congressman Paul Ryan (R-WI) and Senator Ron Wyden (D-OR), which is an improvement over a previous version by Ryan, will be discussed in a future issue of this newsletter.
Last week's newsletter on What's Happening with Conservatives and the Tea Party.
Previous issues of both newsletters.
Follow Art Kelly on Twitter @ArthurKellyJr