New report projects that Medicare trust fund will be exhausted by 2017

On the heels of a promise by health care interest groups to decrease health care costs comes a report projecting that the Medicare trust fund will be depleted 2 years earlier than previously estimated.

According to the 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund, Medicare’s hospital insurance trust fund is projected to be depleted in 2017. Last year, the trustees projected that the fund would be exhausted in 2019.

The new estimate stems from projections of fewer people paying payroll taxes as a result of the economic depression.

“The financial outlook for the Medicare program continues to raise serious concerns,” the trustees wrote. “Total Medicare expenditures were $468 billion in 2008 and are expected to increase in future years at a faster pace than either workers’ earnings or the economy overall.”

As a percentage of the gross domestic product, Medicare expenditures are expected to grow from 3.2% in 2009 to 11.4% by 2083. In 2028, the expenditures of the program are expected to surpass those of Social Security.

In addition, a Medicare funding warning was triggered for the fourth consecutive year as the total Medicare outlays are expected to exceed 45% of outlays within the first 7 years of the projection period. The president must now propose legislation responding to the warning within 15 days of submitting his budget for the succeeding year.

The trustees noted that the Federal Supplementary Medical Insurance trust fund will be adequately financed for the next decade. “However, further Congressional overrides of scheduled physician fee reductions, together with an existing ‘hold harmless’ provision restricting premium increases for most beneficiaries, could jeopardize Part B solvency and require unusual measures to avoid asset depletion,” they wrote.

In his statement of actuarial opinion, Richard S. Foster, the chief actuary of the Centers for Medicare & Medicaid Services, highlighted the likelihood that the actual Part B expenditures will exceed projections if legislative action is taken to prevent scheduled physician payment cuts.

“While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs,” he wrote in the report. “Current law would require physician fee reductions totaling an estimated 38% over the next 6 years — an implausible result.”

For more information:
The 2009 annual report of the Boards of Trustees of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund is available at http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2009.pdf.