Medicare outlook improves slightly

Published Jun 1, 2013 at 05:00AM

WASHINGTON — Falling health-care costs are brightening the financial outlook for Medicare, extending the life of the trust fund that supports the program until 2026 — two years later than previously forecast.

The new projections, released Friday by the program's trustees, credit President Barack Obama's Affordable Care Act in part for the improvement in the finances of the federal health insurance program for the elderly. The act's limits on Medicare Advantage, a more expensive form of Medicare run by private insurers, are proving more effective than previously forecast, the report said.

The trustees also cited lower-than-expected spending in “most ... service categories — especially skilled nursing facilities,” a development that is not well understood. Costs have been slowing throughout the health-care industry, due in part to the recent recession, economists say, but also because of what appear to be more fundamental changes aimed at reducing waste and improving results.

The trustees reported no such gains in the finances of Social Security, but no significant deterioration, either.

The Social Security trust funds will have enough cash to pay full retirement and disability benefits until 2033, the report said.

Both programs still face huge long-term financial problems as the baby-boom generation retires. And on Friday, analysts worried that the sunnier projections, together with an improving economy and a rapidly shrinking federal budget deficit, could serve to further dampen enthusiasm in Washington for tackling the nation's toughest fiscal problems.

“To me, that's the real loss of all this good news,” said Paul Ginsburg, president of the Washington-based Center for Studying Health System Change. “I don't think anyone except the most extreme person, seeing these trends, thinks the (Medicare) cost problem has been solved. But the way politicians are, it does tend to take the pressure off.”

At a news conference to release the report at the Treasury Department, top administration officials pledged to do more to control costs even as they hailed the early success of the president's signature health-care initiative. The Affordable Care Act has come under sustained attack since its passage in 2010 from Republicans who accused Obama of raiding Medicare to help pay for an expansion of health coverage for the uninsured.

The Affordable Care Act indeed aimed to slice roughly $700 billion in savings from Medicare over a decade, mainly through cost controls for providers. The result since its passage, Health and Human Services Secretary Kathleen Sebelius told reporters, has been to extend the life of the trust fund that pays hospital bills by nearly a decade.

“Today's trustee report confirms that the ACA is continuing to strengthen Medicare and ensure its solvency for future generations,” Sebelius said, noting that the administration had advanced that goal “without eliminating a single guaranteed benefit.”

With Medicare spending per person now rising at the historically low rate of 1.7 percent a year, Sebelius said, seniors can also expect to profit: Preliminary estimates show Medicare premiums will not rise “a single dime” for 2014.

Sebelius is one of four administration officials who serve on the board of trustees for Medicare and Social Security. There are also two public trustees: Charles Blahous, a research fellow at the Hoover Institute, and Robert Reischauer, a former president of the Urban Institute and a former director of the Congressional Budget Office.

At the news conference, Reischauer cautioned that it “would be a mistake” to interpret the two-year improvement in the life of the Medicare trust fund “as a significant development.” He noted that the future of Medicare “depends critically on our ability to adhere to the (spending) discipline in the ACA” — a prospect that has long generated skepticism.

Even if the act holds up, independent analysts say policymakers will have to do more to shore up Medicare and Social Security at a time when 10,000 people are retiring daily.

“The good news doesn't mitigate the long-term challenges with the growing elderly population,” said Patricia Neuman, director of the Program on Medicare Policy at the Henry J. Kaiser Family Foundation.

Reischauer and Blahous also warned against complacency for Social Security. While the trust fund for retirement benefits will be solvent for decades, a separate fund for disability benefits will run out in 2016 without congressional action. Making both programs fully solvent for 75 years would require an immediate increase in the 12.4 percent payroll tax of 2.7 percentage points, or an immediate cut in benefits — for all beneficiaries — of more than 16 percent.

“Even if a Social Security solution were enacted today and effective immediately, it would require financial corrections that are substantially more severe than those enacted” in the last major reforms to Social Security in 1983, they wrote in a message included in the report.

Treasury Secretary Jack Lew said Obama “recognizes how essential reform is” and “is determined to work on a bipartisan basis to put Social Security and Medicare on a stronger footing.”

In his most recent budget request, Obama proposed using a less-generous measure of inflation to calculate annual cost-of-living adjustments for Social Security, an idea that would fix about a quarter of the program's long-term funding shortfall. Obama has also proposed to cut Medicare spending by reducing “excessive subsidies to prescription drug companies and ask(ing) wealthy seniors to contribute a little more,” as Lew put it.

But those proposals have gone nowhere in Congress, where members of both parties have shied away from reforms that would affect current beneficiaries. There is some hope that the need to raise the federal debt limit later this year will create fresh pressure for a deal. But for now, Lew acknowledged Friday, momentum has waned.