Web Exclusive: 2010 Medicare Trustees Report extends solvency of program to 2029

Critics contend report significantly underestimates Medicare projected costs

By Sheila Madhani, assistant director of health policy

On August 5, the 2010 Medicare Trustees Report was released. The report concludes that the Medicare Trust Fund will stay solvent until 2029, 12 years longer than estimated in the 2009 report. The report largely credits health care reform legislation passed in March of this year for this improved outlook. While critics contend that the report severely underestimates Medicare projected costs, it may prove useful to the physician community by bringing some attention to impending Medicare physician payment cuts. The report acknowledges that future Part B costs are underestimated until that issue is resolved. 

Report Highlights
The Hospital Insurance (HI) Trust Fund pays for inpatient hospital and related care for Medicare beneficiaries and is mainly financed through payroll taxes. The Supplementary Medical Insurance (SMI) Trust Fund comprises two separate accounts: Part B, which pays for physician and outpatient services, and Part D, which covers the prescription drug benefit. The SMI Trust Fund is financed through a combination of monthly premiums paid by current enrollees and general revenues.

In estimating income and expenses, the report concludes that the HI Trust Fund will be exhausted by 2029. The report attributes several factors to slowing the growth of the Trust Fund’s exhaustion, all related to provisions in the recent health reform legislation:

• Savings based on productivity gains by hospitals and other providers.
• Higher payroll taxes on affluent Americans ($200,000 for single wage earners and $250,000 for married couples filing jointly).
• Reduced payments to Medicare Advantage plans.

The report has been criticized for basing cost savings on weak assumptions. There is doubt that the assumed productivity assumptions are possible or sustainable. Critics have also stated that the higher payroll taxes may be overturned. If these assumptions are not viable, the financial outlook of the program could change dramatically.

In commenting on the SMI Trust Fund, the report concludes that it is adequately financed under current law because of the automatic financing established for Medicare Parts B and D. The Trust Fund will require large increases in enrollee premiums and general revenue funding to cover costs in upcoming years. The report emphasizes that significant financial problems are facing Medicare Part B. Unless Congress acts, Medicare physician payment will be cut by 23 percent in December 2010 and then another 6 percent in January 2011. The report acknowledges that Part B projected costs are understated because the substantial reductions in physician fees that are scheduled to occur in the near future have been incorporated in the estimates even though they are likely be overturned by Congress. If Congress acts to avert these reductions, as is expected, this will impact the estimates on the growth of Part B expenditures.

The summary and full report are available online at www.ssa.gov/OACT/TRSUM/index.html and www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf, respectively.