Report: Medicare’s finances improve, Social Security holding steady

05/31/2013 4:36 PM

06/01/2013 12:44 PM

Medicare’s troubled finances got a boost Friday when the annual trustees report showed that the program’s hospital insurance trust fund will remain solvent until 2026, two years longer than was projected last year.

Social Security has enough cash to cover benefits until 2033, which is unchanged from last year’s projection.

The Obama administration credited Medicare’s improved outlook to lower spending for hospital and skilled nursing care and lower projected program costs for Medicare Advantage plans, the private plans that provide Medicare benefits.

Certain provisions of the controversial health care law, the Patient Protection and Affordable Care Act, also were credited with improving the fiscal outlook of Medicare, the national health insurance program for older people and those with disabilities.

The new law instituted a number of money-saving initiatives, such as cutting payments to hospitals that have high readmission rates for Medicare patients. From 2011 to 2012, 70,000 fewer Medicare beneficiaries were readmitted because of complications from previous ailments.

At an average cost of $10,000 per readmission, the decline potentially saved the program an estimated $700 million, said Brian Cook, a spokesman for the Department of Health and Human Services.

“The Medicare report demonstrates, once again, the importance of the Affordable Care Act, which has strengthened Medicare’s finances by reining in health care costs,” Treasury Secretary Jacob Lew said in a statement. “The health care law has also helped extend the life of the Medicare Hospital Insurance Trust Fund.”

But the modest improvement in finances was no cause for celebration. The trustees report made it clear that Medicare still faces a rocky financial future.

“The financial projections in this report indicate a need for additional steps to address Medicare’s remaining financial challenges,” the report said. “Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be.”

The warnings reflect the coming wave of more than 70 million aging baby boomers, born from 1946 to 1964. They’ll push the number of Medicare recipients 65 and older from 43.1 million in 2012 to 92 million in 2060, federal estimates show.

About half the nation’s seniors already have multiple chronic health conditions, which will make their health care and that of future Medicare recipients more costly going forward. This larger, sicker population is projected to hike Medicare spending from $557 billion this year to more than $1 trillion in 2023, according to recent estimates by the Congressional Budget Office.

That dynamic is likely to fuel continued calls to cut the program’s spending.

President Barack Obama wants to cut Medicare spending by changing the program’s payment structures, reducing subsidies to drug companies and charging affluent seniors more for their care. Republicans in the House of Representatives support turning Medicare into a voucher program that provides a fixed amount of money, which seniors would use to pay for health care.

Nancy LeaMond, an executive vice president at AARP, the leading advocacy group for seniors, said both proposals could harm seniors.

“Too many people in Washington think the only way to address Medicare’s financial challenges is to cut benefits or ask seniors to pay more,” she said. “But that’s not the answer. We can reduce costs and find significant savings in Medicare and throughout the health care system through responsible solutions rather than harmful cuts.”

Medicare covered more than 50 million people last year, including 42.1 million people 65 and older and 8.5 million people with disabilities.

Social Security’s funding situation isn’t as dire as Medicare’s, but it, too, faces financial challenges. If the program’s trust fund that pays old-age benefits becomes depleted as projected in 2033, only 77 percent of benefits would be payable at that time.

The trust fund that pays disability insurance is slated to become depleted in 2016, the same as last year’s estimate. If that occurs, only 80 percent of disability benefits would be payable at that time.

“Legislative action is needed as soon as possible to address this financial imbalance,” said Carolyn Colvin, the acting Social Security commissioner.

Obama has offered smaller, inflation-based benefit hikes for Social Security recipients, but congressional Democrats have been lukewarm to the proposal and Republicans have called for deeper cuts.

Max Richtman, the president of the National Committee to Preserve Social Security and Medicare, stressed that Social Security has a $2.7 trillion surplus that continues to grow.

“This annual trustees report is little more than an opportunity to reissue the same doom-and-gloom news releases and renewed calls to cut these programs in order to ‘save’ them,” Richtman said in a statement.

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