Two Extra Years of Medicare Payments

The expected insolvency of the Medicare Hospital Insurance fund has been pushed back two years, partially due to slower-than-expected spending growth in 2012.

The expected insolvency of the Medicare Hospital Insurance (HI) fund has been pushed back two years, according to a new report.

The annual report of the Social Security and Medicare trustees revealed that the Medicare fund will be depleted by 2026, instead of 2024, which was projected last year. The trustees report that HI expenditures were lower than expected in 2012, but new estimates project that they will grow more rapidly after 2014.

While the trustees credited some of the slowdown in Medicare spending growth to the Affordable Care Act, they did not specify just how much ACA provisions were responsible for.

“This is meaningful, but two years, I don’t think anyone should get too excited,” Marilyn Moon, senior vice president at the American Institutes for Research, told Bloomberg.

The trustees expect that HI tax income and other revenues will fall short of the funds expenditures in most future years. If Medicare continues on its current course, then its spending will represent roughly 9.8% of GDP in 2087, they wrote.

However, the American Hospital Association's president and chief executive officer, Rich Umbdenstock, said that association is very pleased with the fact that the trust fund solvency has been extended by two more years.

"America’s hospitals will continue our efforts to decrease the cost of caring while providing the best quality health care for all patients," he said in a statement.

The AARP released a statement from Executive Vice President Nancy LeaMond saying that there are ways to address Medicare's financial challenges without cutting benefits or asking seniors to pay more.

"We can reduce costs and find significant savings in Medicare throughout the health care system through responsible solutions rather than harmful cuts," LeaMond said in a statement. "For example by improving coordination of care and the use of technology, clamping down on high drug prices, reducing unnecessary services and other wasteful spending, and eliminating fraud, and abuse, we can improve our health care system as a whole while saving money in Medicare."

The financial outlook for Medicare is incredibly uncertain. For instance, the trustees’ report assumes that Medicare payment rates for physicians will be reduced by almost 25% at the beginning of 2014 because of the sustainable growth rate. However, Congress has overridden the reduction every year.

The status on Social Security funds was also released today, showing no change. Social Security funds are still projected to be depleted by 2033.