Annual Report on Medicare Financing Could Reduce the Immediate Impetus to Address Longstanding Issues

Healthcare Financial Management Association | By Nick Hut
 
Even though the latest actuarial analysis arguably diminishes the short-term urgency surrounding the program, stakeholders see ample reason to act quickly.
 
New data on the state of Medicare funding show short-term improvement while keeping the stakes high for ensuing decades.
 
The annual report from Medicare’s trustees shows the Hospital Insurance Trust Fund (i.e., Medicare Part A) has enough money to keep beneficiaries covered and providers paid through 2036. That’s an increase of five years from the 2023 report and eight years from the 2022 projection.
 
In the unlikely event policymakers ever allow insolvency to happen, providers would incur an immediate 11% reduction in Medicare payments. From there, “Medicare could pay health plans and providers of Part A services only to the extent allowed by ongoing tax revenues — and these revenues would be inadequate to fully cover costs,” the trustees’ report states. “Beneficiary access to healthcare services could rapidly be curtailed.”

The improved short-term outlook is based on higher income stemming from increases in the number of covered workers and in average wages. In addition, expenditures are lower than previously projected, in part because of a change instituted by CMS to constrain Medicare Advantage (MA) payments by excluding MA-associated medical education expenses from benchmark calculations.
 
Updated number-crunching also has resulted in lower projections for spending on inpatient care and home health services as the trustees phase out some of the mathematical adjustments that were applied during the COVID-19 pandemic.
Nonetheless, Medicare fee-for-service (FFS) inpatient payments are anticipated to rise by 2.3% this year, 2% in 2025, and then by 5.4%-5.5% per year through 2029. The jump during the latter part of that window partially would be linked to a projected deceleration in the shift from FFS to MA.

A Drag on the Economy

Medicare costs are projected to comprise 3.9% of GDP in 2025, up from 2.19% in 2000, although the 2025 number is down from a projected 4.13% in last year’s report. Within a decade, the figure is expected to reach 5.3%. 

“I wouldn’t put that much stock in the trust fund number per se,” Michael Chernew, PhD, professor of healthcare policy at Harvard Medical School, said during a May 7 webinar hosted by the Committee for a Responsible Federal Budget (CRFB). “I think the bigger issue with Medicare is just the overall burden that the program is placing on the economy.”
That strain is expected to grow over the long term, reaching 6.2% at the end of the 75-year window examined in the latest report...

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