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News July 2012

Washington Watch

Medicare, Social Security Slide into Insolvency Worsened This Year

By Alan M. Schlein

Once again, trustees forecast that Medicare's hospital fund would begin to run out of money beginning in 2024, but many experts place little importance on the trustees' projection since the program's insolvency has been forecast from as little as two years away to as many as 28 years since 1970.

c_stingeralz2sAt a time when Republican and Democratic lawmakers continue to squabble over how to fix Medicare, and the Supreme Court weighs the constitutionality of the Obama health care law, the nation's Social Security and Medicare programs are sliding closer to insolvency, the federal government warned in a recent report.

The annual Social Security and Medicare Trustee's report, underscores the fiscal challenges facing the two mammoth retirement programs as baby boomers begin to retire and as voters prepare for the November elections.

Medicare, which will provide health insurance to nearly 50 million elderly and disabled Americans this year, is expected to start operating in the red in 2024, according to the annual assessment by the trustees charged with overseeing the programs. Meanwhile, the Social Security trust fund, which provides assistance to more than 45 million people this year, will be unable to fulfill its obligations in 2033, three years earlier than projected last year.

"Both programs took a turn for the worse this year," trustee Charles Blahous III, a senior research fellow at George Mason University in Virginia, said of Medicare and Social Security.

Overall, the outlook for the Medicare program was only slightly worse than findings from last year. Once again, trustees forecast that Medicare's hospital fund would begin to run out of money beginning in 2024, but many experts place little importance on the trustees' projection since the program's insolvency has been forecast from as little as two years away to as many as 28 years since 1970.

When the Social Security and Medicare funds are exhausted, they will still be able to pay benefits because they will continue to collect tax revenue. But the deficits in the fund would likely force major cuts. The dismal outlook has been fueled, in part, by the sluggish economy, which has slowed growth in payroll taxes that sustain the trust funds, according to the trustees, who include Cabinet secretaries and two public representatives.

If the Social Security and Medicare funds ever become exhausted, the nation's two biggest benefit programs would collect only enough money in payroll taxes to pay partial benefits. Social Security could cover about 75 percent of benefits, the trustees said in their annual report. Medicare's giant hospital fund could pay 87 percent of costs.

"Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare," the trustees wrote. "If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare."

The deteriorating trust fund situation annually prompts bipartisan calls for new efforts to tackle the entitlement programs. But talk is rarely followed by action – especially in an election year. What is of critical importance is that the trust fund that pays for disability benefits is projected to run out of money four years from now. In the absence of a long-term solution, the trustees who oversee Social Security are urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994.

In the past 30 years, Republicans and Democrats have managed to occasionally put aside their partisan perspectives and find a compromise. It happened in the mid-1980s and again in the mid-1990s, but given the hyper-partisan environment today, chances of finding a middle ground compromise is considered slim.

Medicare, in particular, has emerged as a flash point between the two parties which are proposing starkly different plans for the program. Congressional Republicans have twice in the past two years pushed legislation to largely privatize Medicare by giving beneficiaries a voucher to shop for commercial insurance, which they say would expand seniors’ choices and help bring down costs. Republican presidential candidate Mitt Romney is pushing a similar strategy.

Depending how things are structured, these voucher programs or "premium support," can shift thousands of dollars of medical bills onto seniors. The nonpartisan Congressional Budget Office has calculated that this shift is the primary way in which the Republicans’ plan could save the government money. Republicans are also pushing to raise the eligibility age for Medicare from 65 to 67, another move they say will contain costs.

Democrats and President Obama continue to resist the voucher or premium support ideas, instead looking to the health care reform law signed in 2010 to restrain rising costs in Medicare. This would be done largely by using the program to force medical providers to become more efficient. So far, that strategy has had mixed results. Recently, the General Accountability Office questioned the Obama administration's decision to roll back planned cutbacks in payments to commercial insurers that administer Medicare Advantage plans, a popular option with seniors. But other cost- cutting measures have worked.

The Obama administration's recent success story has been the use of competitive bidding to buy medical equipment for Medicare beneficiaries after a one-year experiment saved money for taxpayers and patients without harming the quality of care. The administration said it intends to expand the program, which was a sharp break from the usual fee-for-service Medicare program, under which beneficiaries can choose any supplier or provider of goods and services. In the experiment, Medicare officials invited bids and awarded contracts to 356 suppliers of medical equipment in nine metropolitan areas, including Cleveland, Dallas, Miami-Fort Lauderdale and Riverside, Calif.

Health and Human Services Secretary Kathleen Sebelius, said the pilot program had reduced Medicare costs by 42 percent, or $202 million, by securing lower prices and curbing "inappropriate utilization" of personal medical equipment in the nine markets. The bulk of the savings came from oxygen equipment, power wheelchairs and mail-order test strips for people with diabetes.

In advance of the Trustee's report, the Obama administration issued its own analysis, saying the Affordable Care health law would save over $200 billion in Medicare spending through 2016 and that beneficiaries in the traditional, government-run program would save nearly $60 billion through lower payments. Those savings would come from ending extra payments to private health plans in Medicare, cracking down on fraud and "changing provider payment policies to reflect improvements in productivity," according to the report from the Centers for Medicare and Medicaid Services.

Not surprisingly, Lanhee Chen, policy director for GOP presidential hopeful Mitt Romney, disputed such savings, however, saying the report shows the president "has no serious plan" to strengthen Medicare.

Medicare's biggest problem will come from the expected numbers of baby boomers nearing retirement. The number of beneficiaries is projected to hit 80 million by 2030, according to the trustees report.


Also contributing to this report: Politico, National Public Radio, the New York Times, the Los Angeles Times, Kaiser Health News, Associated Press and Medpage Today.

Alan Schlein has been covering the national Washington beat for Senior Wire News Service for over two decades.

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