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September 08, 2015
Medicare: Not Doomed Just Yet

A quick web search for “Medicare doomed” turns up results dominated by panic, fear-mongering and, in many cases, misinformation. Pages and pages, covering nearly half a million links. It’s easy to see how people might think the Centers for Medicare and Medicaid Services (CMS) have dropped the ball, and that there’ll be nothing left for retirees, leaving a free-for-all on the insurance marketplace for older people.

The truth is much more complicated (and less worrisome) than that. Here’s what you can take away from the Medicare Board of Trustees’ annual report.

The trust is not “running out”

Yes, the trust that funds Medicare is being depleted — money has to be spent to pay for the care of retirees and older people. After all, the Medicare Program is the second-largest social insurance program in the U.S. (after Medicaid), with 53.8 million beneficiaries and total expenditures of $613 billion in 2014. The Medicare Program has more than one component to Medicare:

  1. The Hospital Insurance (HI) component of Medicare is also known as Medicare Part A, and pays for hospital, post-discharge home health care, skilled nursing facility care, and hospice care for the aged and disabled.
  2. The Supplementary Medical Insurance (SMI) components of Medicare consist of Medicare Part B (physician, outpatient hospital, home health and other services) and Part D (subsidized access to drug insurance coverage).

The estimated depletion date for the HI program only is 2030 — which doesn’t mean the fund will run “out” of money. Rather, it means that 100% of the costs of Medicare part A can be covered through that date. At that point, payroll taxes and other revenue will be able to cover 86% of HI component costs for another 20 years. After that, through 2089, there will be enough to cover 80%, and 84% thereafter. Medicare Part B and Part D aren’t even projected to become insolvent. What’s clear is that Medicare is not going to go bankrupt and cease operation, let alone imminently.

The marketplace is changing

Medicare is now projected to remain solvent 13 years longer than the Trustees projected in 2009, before the Affordable Care Act (ACA) was passed. That’s thanks in large part to reforms made by the Department of Health and Human Services (HHS) under ACA:

  • Readmissions are down — Medicare hospital readmissions are down nearly 8% since 2012, meaning fewer additional hospital stays for seniors and cost savings to the program.
  • Hospital-acquired conditions are down — Rates of hospital-acquired conditions for Medicare beneficiaries decreased by 17% between 2010 and 2013, meaning fewer complications and infections for persons receiving hospital-based care and cost savings to the program.
  • Better-quality care is on the up — The Center for Medicare and Medicaid Innovation (Innovation Center) is testing innovative payment and service delivery models that reduce spending while maintaining or improving quality of care
  • Alternative payment models deliver better care at better value — CMS, through the Innovation Center, and other programs are creating alternative payment models, such as Accountable Care Organizations (ACOs) and the Medicare Shared Savings Program, which have already resulted in $417 million in savings for Medicare. More than ACOs are participating in the Medicare Shared Savings program, serving over 7 million beneficiaries; and the Comprehensive Primary Care Initiative, a multi-payer initiative involving nearly 500 practices serving 2.5 million beneficiaries, has already resulted in decreased hospital admissions and emergency department visits at some sites.

Furthermore, HHS has found that reforms have measurably improved healthcare, and not just in services provided by Medicare. Patient populations not covered by Medicare are benefiting as the quality tide rises, saving money across the marketplace, which may provide future opportunities to enhance Medicare and Medicaid.

There’s still time to devise solutions

Even if Medicare were going bankrupt in 15 years, there’d be time to continue to innovate and make changes. No doubt, the shortfall that will occur after 2030 needs to be covered. And further reforms to the system are set to help raise revenues, slowing the growth in costs, or both.

For example, the Health Care Fraud and Abuse Control program has already returned $10.7 billion to the Medicare Trust Funds, and will continue to help keep costs lower; administrative simplification in the health system is set to save $20 billion over 10 years; and the implementation of public-private partnerships using tools and resources provided by ACA are helping to improve quality, safety and affordability of healthcare for all Americans, and is projected to reduce Medicare costs by up to $50 billion over the next decade.

“Projections of Medicare costs are highly uncertain, especially when looking out more than several decades,” write the Trustees. “Spurred by economic incentives, the institutions through which care is delivered will evolve, possibly becoming more efficient. While most health care technological advances to date have tended to increase expenditures, the health care landscape is shifting. No one knows whether future developments will, on balance, increase or decrease costs.”

In other words: Things have changed and are continuing to change. There’s no need to panic just yet.

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