Medicare Trustees to Issue Warning Requiring Reduction of Medicare Expenses

The 2003 Medicare Modernization Act has a cost cutting provision that is intended to keep federal funding below 45% of total Medicare spending. If the Medicare Trustees predict, for two years in a row, that Medicare will be 45% financed by general funds in seven years, the Trustees must issue a “Medicare funding warning”. The President must then propose legislation in the following year’s budget to reduce the federal funding to keep it within the 45% limit, and Congress must consider it. This article says that warning will probably be issued this year.

In future years, this limitation will be serious, because costs for doctors visits and drugs (paid by federal funds) are rising faster than costs for hospitalization (paid by workers’ payroll deductions, not federal funds), so premium costs would have to increase, or benefits and provider reimbursements would have to decrease, or both. According to Families USA, this would ultimately lead to a cap on federal spending. Meanwhile, 70 million new retirees will be joining Medicare.

See other ways the Medicare Modernization Act endangers patients and Medicare itself.

Contra Costa Times: 04/20/2007 12:17:28 AM PDT

Medicare trustees may sound new alarm

By KEVIN FREKING Associated Press Writer

WASHINGTON- The upcoming report on Medicare’s financial health is likely to contain a first-of-its-kind warning that will require President Bush to find ways to make the entitlement program more self-reliant.

House Republicans came up with the idea for the warning when drawing up the Medicare drug benefit in 2003. Lawmakers say they were concerned the program’s future growth would crowd out essential spending for defense, education and other purposes.

“It’s just one way of throwing some water in our faces so we look at this problem” said Rep. Paul Ryan, R-Wis.

The drug bill required that trustees issue a “Medicare funding warning” when they project in consecutive years that Medicare will rely on general revenues for 45 percent of its money.

Last year’s report contained such a projection for 2012. So this year’s report, scheduled to be released Monday, could be the one that triggers the warning if the trend line holds for 2013.

The warning could lead to such changes as payment cuts for health care providers or higher premiums for beneficiaries. Congress also could choose to ignore it.

Some advocacy groups and congressional aides are expecting such a warning. Medicare’s long-term financing trends have not changed dramatically over the course of the year. One part of Medicare, the drug benefit, is coming in under budget.

“We are going to hit the 45 percent,” Mark Hayes, chief health care adviser to Iowa GOP Sen. Charles Grassley, said late last year. “And the official sounding of that trigger, I think, will at least trigger its own discussion about entitlements and where we’re going in this country with spending.”

Already, many analysts believe the wake-up call will be greatly ignored. They say the trigger has nothing to do with the program’s solvency, which refers to how long surpluses in the hospital insurance trust fund will last.

“There’s not a great enthusiasm on the Hill to make arbitrary cuts based on an arbitrary number,” said Kirsten Sloan, the AARP’s national coordinator for health.

In fact, Rep. Pete Stark, D-Calif., chairman of the health subcommittee for the House Ways and Means Committee, said he will work this year to pass legislation that does away with the 45 percent rule. In any event, he does not intend to pay it much attention.

Absent legislation, Bush will be required to propose ways to reduce Medicare’s reliance on the general treasury to below 45 percent. Bush’s most recent budget has recommended an across-the-board cut of 0.4 percent for every Medicare provider when general funds pay for more than 45 percent of the program.

Congress also will have to consider the president’s recommendations next year on an expedited basis, but it can reject them. Several advocacy groups will encourage them to do so.

More than 43 million elderly and disabled people will rely on Medicare this year for their health insurance coverage. The program will cost an estimated $436 billion. It is paid for through a mix of payroll taxes, general revenue, premiums and state payments.

Medicare costs are growing at a rate of about 6.5 percent. The growth stems from enrollment increases as well as health care inflation, which tends to outpace overall inflation.

The AARP’s Sloan said that a more prudent course for Congress to take when it comes to controlling growth would be to look at each piece of Medicare. Then, they can determine where it is overpaying and how that problem can be best fixed.

But Ryan believes that a Democrat-led Congress is not inclined to take that approach, either.

“In and of itself, the trigger has nothing to do with the long-term solvency,” Ryan said. “But it serves as a wake-up call to Congress that it better get serious about reforming and saving these programs.

“If we do what the Democratic budget proposes, which is nothing for five years on entitlements, then we’re guaranteeing that these programs go bankrupt.”

Stark said capping general revenue for Medicare makes as much sense as capping it for defense.

One way Democrats will look to control Medicare costs is through lowering the payment rates for some private insurers, he said.

“I’ve heard the trustees tell me that the Medicare trust fund has a one-year survival up to as high as a 26-year survival,” he said. “It changes every year. It’s sort of like my kids who tell me that if they don’t get dessert, they’re going to hold their breath and die. Well, they’re still kicking.”

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1 Response to “Medicare Trustees to Issue Warning Requiring Reduction of Medicare Expenses”


  1. 1 mlyon01 April 20, 2007 at 3:44 pm

    April 20, 2007
    Op-Ed Columnist
    The Plot Against Medicare
    By PAUL KRUGMAN

    The plot against Social Security failed: President Bush’s attempt to privatize the system crashed and burned when the public realized what he was up to. But the plot against Medicare is faring better: the stealth privatization embedded in the Medicare Modernization Act, which Congress literally passed in the dead of night back in 2003, is proceeding apace.

    Worse yet, the forces behind privatization not only continue to have the G.O.P. in their pocket, but they have also been finding useful idiots within the newly powerful Democratic coalition. And it’s not just politicians with an eye on campaign contributions. There’s no nice way to say it: the N.A.A.C.P. and the League of United Latin American Citizens have become patsies for the insurance industry.

    To appreciate what’s going on, you need to know what has been happening to Medicare in the last few years.

    The 2003 Medicare legislation created Part D, the drug benefit for seniors — but unlike the rest of Medicare, Part D isn’t provided directly by the government. Instead, you can get it only through a private drug plan, provided by an insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies.

    As a result, Medicare — originally a system in which the government paid people’s medical bills — is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.

    In the case of the drug benefit, the private drug plans add an extra, costly layer of bureaucracy. Worse yet, they have much less ability to bargain for lower drug prices than government programs like Medicaid and the Veterans Health Administration. Reasonable estimates suggest that if Congress had eliminated the middlemen, it could have created a much better drug plan — one without the notorious “doughnut hole,” the gap in coverage once your annual expenses exceed $2,400 per year — at no higher cost.

    Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than $50 billion — about what it would cost to provide all children in America with health insurance. Some of that $50 billion will be passed on to seniors in extra benefits, but a lot of it will go to overhead, marketing expenses and profits.

    With the Democratic victory last fall, you might have expected these things to change. But the political news over the last few days has been grim.

    First, the Senate failed to end debate on a bill — in effect, killing it — that would have allowed Medicare to negotiate over drug prices. The bill was too weak to have allowed Medicare to get large discounts. Still, it would at least have established the principle of using government bargaining power to get a better deal. But in spite of overwhelming public support for price negotiation, 42 senators, all Republicans, voted no on allowing the bill to go forward.

    If we can’t even establish the principle of negotiation, a true repair of the damage done in 2003 — which would require having Medicare offer seniors the option of getting their drug coverage directly, without involving the insurance companies — seems politically far out of reach.

    At the same time, attempts to rein in those Medicare Advantage payments seem to be running aground. Everyone knew that reducing payments would be politically tough. What comes as a bitter surprise is the fact that minority advocacy groups are now part of the problem, with both the N.A.A.C.P. and the League of United Latin American Citizens sending letters to Congressional leaders opposing plans to scale back the subsidy.

    What seems to have happened is that both groups have been taken in by insurance industry disinformation, which falsely claims that minorities benefit disproportionately from this subsidy. It’s a claim that has been thoroughly debunked in a study by the Center on Budget and Policy Priorities — but apparently the truth isn’t getting through.

    Public opinion is strongly in favor of universal health care, and for good reason: fear of losing health insurance has become a constant anxiety of the middle class. Yet even as we talk about guaranteeing insurance to all, privatization is undermining Medicare — and people who should know better are aiding and abetting the process.


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