The Financial Status of Medicare 20 th Annual Princeton Conference: The Health Care System in Transition May 22, 2013 Richard S. Foster, FSA
Chart 1 Medicare solvency, budget impact, and sustainability : Which concept is which? Trust fund solvency: Is a fund s income adequate to cover its expenditures? Budget impact: Does Medicare increase or reduce the Federal Budget deficit? Sustainability: Can the Medicare program fulfill its intended purposes in the long run, at a cost that the nation can afford? These three concepts are often confused but are fundamentally different. Questions related to one concept cannot be answered by information from another.
Chart 2 Financial status of Medicare Part A trust fund (Costs and income as a percent of taxable payroll; 2012 Medicare Trustees Report) 11% 1 Historical Projected Cost Rate (illustr. alt.) 9% 8% 7% Cost Rate (current law) 6% 5% 4% Income Rate 3% 2% Part A trust fund assets are projected to cover deficits until early 2024 under intermediate assumptions. 1% The Part B and D trust fund accounts are automatically in financial balance. 1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 2067 2077 2087
Chart 3 Medicare sources of income and expenditures (As a percentage of GDP; 2012 Medicare Trustees Report) 7% 6% Historical Trust fund deficit Projected Total expenditures Part A deficit 5% 4% Impact of Medicare on Federal Budget deficit General revenue transfers 3% State transfers & drug fees 2% Premiums 1% Taxes on SS benefits Payroll taxes 1966 1976 1986 1996 2006 2016 2026 2036 2046 2056 2066 2076
Chart 4 Total Medicare income less expenditures based on trust fund and budget perspectives (in billions) 100 50 0-50 Trust Fund -100-150 -200-250 Budget -300 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Price as a percentage of PHI rates Chart 5 Comparison of relative Medicare, Medicaid, and PHI prices for inpatient hospital services under current law 12 10 Past Medicare Projected Private health insurance (PHI) 8 6 Medicaid Current level of Medicaid relative to PHI 4 Projected level of Medicare and Medicaid 2 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
Price as percentage of PHI rates Chart 6 Comparison of relative Medicare, Medicaid, and PHI prices for physician services under current law 12 10 Past Projected Private health insurance (PHI) 8 6 Medicaid 4 Medicare 2 2000 2010 2020 2030 2040 2050 2060 2070 2080
Chart 7 Medicare expenditures under current law and illustrative alternative projections (as a percentage of GDP) 12% 1 8% 6% Current Law 6.7% 4% 3.7% 2% 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
Chart 7 Medicare expenditures under current law and illustrative alternative projections (as a percentage of GDP) 12% 1 8% 6% Alternative to SGR Current Law 7.9 % 6.7% 4% 2% 3.7% Illustrative alternative to current law assumes: Physician payment SGR formula is overridden in all years NB: This is an illustration, not a recommendation 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
Chart 7 Medicare expenditures under current law and illustrative alternative projections (as a percentage of GDP) 12% 1 Alternative to SGR, Productivity Adjustments, and IPAB 10.4% 8% 6% Alternative to SGR Current Law 7.9 % 6.7% 4% 2% 3.7% Illustrative alternative to current law assumes: Physician payment SGR formula is overridden in all years Productivity adjustments to other provider updates are phased down over 2020-2034 IPAB requirements are not implemented NB: This is an illustration, not a recommendation 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090
Chart 8 Possible methods of reducing Medicare expenditures Part I Reduce waste & inefficiency Reduce fraud & abuse Emphasize preventive care Use electronic health records Pay for performance Reduce provider payment rates Increase beneficiary cost-sharing Increase age of eligibility Slow growth rate??
Chart 9 Possible methods of reducing Medicare expenditures Part II Slow growth rate? Manage care Introduce delivery, payment innovations Develop national practice standards Adopt new medical technology more prudently Increase competition Convert to premium support system Convert to premium support with limited updates Convert to defined contribution (global payment) system????