Tag: problems with Medicare

The New York Analysis of Policy and Government concludes its review of the disappointment to users of Medicare, and its pending insolvency.

The 2018 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds was issued this month, and it outlines the challenges facing the system:

In 2017, Medicare covered 58.4 million people: 49.5 million aged 65 and older, and 8.9 million disabled. Over 34 percent of these beneficiaries have chosen to enroll in Part C private health plans that contract with Medicare to provide Part A and Part B health services. Total expenditures in 2017 were $710.2 billion, and total income was $705.1 billion, which consisted of $694.3 billion in non-interest income and $9.8 billion in interest earnings. Assets held in special issue U.S. Treasury securities decreased by $5.0 billion to $289.6 billion.

Short-Range Results

The estimated depletion date for the HI trust fund is 2026, 3 years earlier than in last year’s report. As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years. HI income is projected to be lower than last year’s estimates due to (i) lower payroll taxes attributable to lowered wages for 2017 and lower levels of projected GDP and (ii) lower income from the taxation of Social Security benefits as a result of legislation. HI 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.

In 2017, HI income exceeded expenditures by $2.8 billion. The Trustees project deficits in all future years until the trust fund becomes depleted in 2026. The assets were $202.0 billion at the beginning of 2018, representing about 65 percent of expenditures during the year, which is below the Trustees’ minimum recommended level of 100 percent. The HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003. Growth in HI expenditures has averaged 2.1 percent annually over the last 5 years, compared with non-interest income growth of 4.9 percent. Over the next 5 years, projected annual growth rates for expenditures and non-interest income are 6.2 percent and 5.3 percent, respectively.

The SMI trust fund is expected to be adequately financed 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 and ensure a reserve for Part B contingencies. The Part B premium for 2018 is $134.00, the same as for 2017. However, a hold-harmless provision limited the premium increase in 2016 and 2017 for about 70 percent of enrollees. These Part B enrollees saw an increase in their Part B premium from about $109 in 2017, on average, to about $130, on average, in 2018.

Part B and Part D costs have averaged annual growth of 5.5 percent and 8.5 percent, respectively, over the last 5 years, as compared to growth of 3.7 percent for GDP. Under current law, the Trustees project an average annual Part B growth rate of 8.2 percent over the next 5 years; for Part D, the estimated average annual increase in expenditures for these 5 years is 6.0 percent. The projected average annual rate of growth for the U.S. economy is 4.7 percent during this period, significantly slower than for Part B and Part D. The Trustees are issuing a determination of projected excess general revenue Medicare funding in this report because the difference between Medicare’s total outlays and its dedicated financing sources6 is projected to exceed 45 percent of outlays within 7 years. Since this is the second consecutive such finding, the law specifies that a Medicare funding warning is triggered and that 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.

Long-Range Results

For the 75-year projection period, the HI actuarial deficit has increased to 0.82 percent of taxable payroll from 0.64 percent in last year’s report. (Under the illustrative alternative projections, the HI actuarial deficit would be 1.71 percent of taxable payroll.) The 0.18 percent of payroll increase in the actuarial deficit was primarily due to lower projected payroll tax income, higher expenditures in 2017, higher payments to Medicare Advantage plans, and legislation that increased expenditures.

Part B outlays were 1.6 percent of GDP in 2017, and the Board projects that they will grow to about 2.8 percent by 2092 under current law.
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The long-range projections as a percent of GDP are slightly higher than those in last year’s report due to recent legislation and higher Medicare Advantage spending. (Part B costs in 2092 would be 4.3 percent under the illustrative alternative scenario.)

The Board estimates that Part D outlays will increase from 0.5 percent of GDP in 2017 to about 1.2 percent by 2092. These long-range outlay projections, as a percent of GDP, are about the same as those shown in last year’s report.

Transfers from the general fund finance about three-quarters of SMI costs and are central to the automatic financial balance of the fund’s two accounts. Such transfers represent a large and growing requirement for the Federal budget. SMI general revenues equal 1.5 percent of GDP in 2017 and are projected to increase to an estimated 2.8 percent in 2092.

Conclusion

Total Medicare expenditures were $710 billion in 2017. The Board projects that expenditures will increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall and that, as a percentage of GDP, they will increase from 3.7 percent in 2017 to 6.2 percent by 2092 (based on the Trustees’ intermediate set of assumptions). If the relatively low price increases for physicians and other health services under Medicare are not sustained and do not take full effect in the long range as in the illustrative alternative projection, then Medicare spending would instead represent roughly 8.9 percent of GDP in 2092. Growth under any of these scenarios, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.

The Trustees project that HI tax income and other dedicated revenues will fall short of HI expenditures in all future years. The HI trust fund does not meet either the Trustees’ test of short-range financial adequacy or their test of long-range close actuarial balance.

The Part B and Part D accounts in the SMI trust fund are expected to be adequately financed because premium income and general revenue income are reset each year to cover expected costs. Such financing, however, would have to increase faster than the economy to cover expected expenditure growth.

The financial projections in this report indicate a need for substantial steps to address Medicare’s remaining financial challenges.

Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be. Moreover, the early introduction of reforms increases the time available for affected individuals and organizations—including health care providers, beneficiaries, and taxpayers—to adjust their expectations and behavior. The Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address the depletion of the HI trust fund and the projected growth in HI (Part A) and SMI (Parts B and D) expenditures.

illustration: Pixabay

The New York Analysis of Policy and Government continues its review of the disappointment to users of Medicare, and its pending insolvency.

 Despite what many believe to be less than ideal coverage, the system itself will soon face bankruptcy. The Urban Institute  suggests inefficiency as a key reason:

“Fee for service Medicare, which enrolls some 85 percent of all participants, lacks strong incentives either for beneficiaries to seek or providers to supply only cost-effective care or, for that matter, only care that has a reasonable chance of improving health outcomes. Of course, many private sector health plans also suffer from this deficiency. Medicare, however, faces another challenge —setting its payments at the right level—that does not bedevil private plans to the same degree. The program pays for thousands of medical services delivered by hundreds of thousands of providers and suppliers operating in hundreds of separate market areas. Because it must operate throughout this very diverse nation, it is impossible to set uniform payment rates that will be efficient everywhere. Some providers are overpaid, others are undercompensated. Because the consequences of underpayment are so serious—denial of access to needed services for a vulnerable population—and because political pressures can affect payment policies, overpayments (rather than under payments) tend to be the norm. Of course, all complex systems tolerate some inefficiency because the costs of wringing out the excess exceeds the gain. But the level of inefficiency accepted in Medicare is higher than that in private sector plans because Medicare, being a government program, has objectives other than efficiency, such as ensuring that certain types of providers survive in rural areas. As reform options that promise improved efficiency are debated, it will be important to consider whether and how these other goals of the Medicare program will be met under a restructured system.”

In a 2011 National Affairs examination, Avik Roy wrote “Medicare’s woes are partly demographic. In 2030, when the last of the Baby Boomers retires, there will be 77 million people on Medicare, up from 47 million today. But there will be fewer working people funding the benefits of this much larger retiree population: In 2030, there will be 2.3 workers per retiree, compared to 3.4 today and about 4 when the program was created. But a bigger part of Medicare’s troubles is the rapid inflation of health-care costs. In 2010, the per capita cost of providing health-care services in America increased by 6.1%, according to Standard & Poor’s, while overall inflation increased by only 1.5%. Over the past decade, health-care inflation has risen 48%, while inflation in the broader economy has increased by only 26%, according to the Department of Labor…

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First, other government agencies help administer the Medicare program. The Internal Revenue Service collects the taxes that fund the program; the Social Security Administration helps collect some of the premiums paid by beneficiaries (which are deducted from Social Security checks); the Department of Health and Human Services helps to manage accounting, auditing, and fraud issues and pays for marketing costs, building costs, and more. Private insurers obviously don’t have this kind of outside or off-budget help. Medicare’s administration is also tax-exempt, whereas insurers must pay state excise taxes on the premiums they charge; the tax is counted as an administrative cost. In addition, Medicare’s massive size leads to economies of scale that private insurers could also achieve, if not exceed, were they equally large.

But most important, because Medicare patients are older, they are substantially sicker than the average insured patient — driving up the denominator of such calculations significantly. For example: If two patients cost $30 each to manage, but the first requires $100 of health expenditures and the second, much sicker patient requires $1,000, the first patient’s insurance will have an administrative-cost ratio of 30%, but the second’s will have a ratio of only 3%. This hardly means the second patient’s insurance is more efficient — administratively, the patients are identical. Instead, the more favorable figure is produced by the second patient’s more severe illness.

The Report Concludes Tomorrow

Illustration: Pixabay

10,000 boomers turn 65 each and every day, meaning that they will be eligible for Medicare.  Almost all of them will be disappointed, distressed and confused about the program they have paid into throughout their entire working lives.

Making matters worse, despite what many believe to be inadequate benefits and significant costs, the Medicare system itself is going broke more rapidly than expected, according to the recently released Medicare Trustees report.

The current total Medicare tax is 2.9%, .half of which is paid for by employees, and half by employers. Spread over an average working life, this adds up to a considerable sum of money. A Forbes analysis reports that a male earning an average wage over his lifetime will have paid about $61,000 into Medicare.

It’s not inappropriate, then, that many believe that when (and if) they reach their 65^th year, their medical insurance needs will be fully and simply accommodated. Unfortunately, they will face a bitter shock. There’s no free ride after turning 65. Medicare Part B monthly premiums can range from $134 to $428.60, based on income, for coverage that does not even cover many needs.  To make up the difference, seniors need to purchase private plans to fill in the gaps to cover to cover what a CNBC study estimates will be the $280,000 the average retired couple will spend on health care for the remainder of their lives.

An Urban Institute study found that “The Medicare benefit package is inadequate by the health insurance standards that prevail for the under age 65 population. It lacks coverage for most out-patient prescription drugs and imposes relatively high cost sharing requirements. It has no catastrophic cap on out-of-pocket expenditures and has very limited coverage for long-term care. The gaps in the benefit package have led the vast majority of beneficiaries—some 88 percent—to seek supplemental insurance coverage through individually purchased Medigap policies, employer-sponsored retiree policies, Medicaid, or M+C plans. This practice of dual coverage is complex, confusing, and costly. Furthermore, it is a system that is unraveling. Many employers are scaling back or dropping their retiree coverage, Medigap premiums are rising rapidly, and M+C plans are withdrawing from many markets and reducing their supplemental benefits. Any serious reform must begin by establishing a standard benefit package that the vast majority of beneficiaries consider sufficient without supplementation. Expanding the benefit package to include only prescription drug coverage will reduce, but not solve, this problem.”

The official Medicare website itself warns the approximately 48 million Americans enrolled in Medicare that “Even if Medicare covers a service or item, you generally have to pay your deductible, coinsurance, and copayments.” Some items are not covered at all, including: long-term care (also called custodial care); most dental care; eye exams related to prescribing glasses; dentures; cosmetic surgery; acupuncture; hearing aids and exams for fitting them; and routine foot care.

There can be some nasty shocks, as well, depending on how a physician describes, for example, a hospital visit.  If an inpatient stay is for “observation” as opposed to “treatment,” costs may not be covered.

To cover some of the expenses not covered by Medicare, seniors often seek private additional coverage, in the form of “supplemental” or “advantage” plans. Healthmarkets.com notes that costs for these plans can range into the high $300’s per month, although the average is considerably less.

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Part A helps pay the costs of a stay in a hospital or skilled nursing facility, home health care, hospice care, and medicines administered to inpatients.

Part B helps pay bills for physicians and outpatient services such as rehab therapy, lab tests and medical equipment. It also covers doctors’ services in the hospital and most medicines administered in a doctor’s office.

Part C is a different way you can choose to receive your Medicare benefits. It consists of a variety of private health plans, known as Medicare Advantage plans (mainly HMOs and PPOs) that cover Part A, Part B and (often) Part D services in one package.

Part D helps pay the cost of prescription drugs that you use at home, plus insulin supplies and some vaccines. To get this coverage, you must enroll in a private Part D drug plan or in a Medicare Advantage plan that includes Part D drugs.

Notice the use of the word “helps,” as opposed to “fully covers.”

The Report Continues Tomorrow.

Illustration: Pixabay