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Forbes.com

 

Trustees: Medicare Will Go Broke in 2016, If You Exclude Obamacare's Double-Counting

April 23, 2012

By Avik Roy

The Trustees of the Medicare program have released their annual report on the solvency of the program. They calculate that the program is "expected to remain solvent until 2024, the same as last year’s estimate." But what that headline obfuscates is that Obamacare’s tax increases and spending cuts are counted towards the program’s alleged "deficit-neutrality," Medicare is to go bankrupt in 2016. And if you listen to Medicare’s own actuary, Richard Foster, the program’s bankruptcy could come even sooner than that.

Here’s how the Centers for Medicare and Medicaid Services summarize the findings, which carry the formal title "2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds" :

[Medicare Hospital Insurance Trust Fund] expenditures have exceeded income annually since 2008 and are projected to continue doing so under current law in all future years. Trust Fund interest earnings and asset redemptions are required to cover the difference. HI assets are projected to cover annual deficits through 2023, with asset depletion in 2024. After asset depletion, if Congress were to take no further action, projected HI Trust Fund revenue would be adequate to cover 87 percent of estimated expenditures in 2024 and 67 percent of projected costs in 2050. In practice, Congress has never allowed a Medicare trust fund to exhaust its assets.

The financial projections for Medicare reflect substantial cost savings resulting from the Affordable Care Act, but also show that further action is needed to address the program’s continuing cost growth.

The Trustees, by saying that Medicare will go bankrupt in 2024, instead of 2016, are simultaneously saying that the program will increase the deficit by several hundred billion dollars. This is precisely the insight that Charles Blahous, one of the Medicare Trustees, explained in his recent report on the program.

Think of it this way: if supporters of the Affordable Care Act came clean, they would say one of two things: (1) Medicare is going bankrupt in 2016, but the CBO scores the ACA as deficit neutral; or (2) Medicare is going bankrupt in 2024, and Blahous’ score of the ACA as increasing the deficit by $300-500 billion is accurate.

Which path will they choose? As Chris Jacobs notes, President Obama has admitted that, "You can’t say that you are saving on Medicare and then spending the money twice." That is, Chuck Blahous is right.

Medicare actuary Richard Foster splashes cold water on the Trustees’ report

If you want to get a sense of how Medicare’s finances look when viewed with real-world accounting assuptions, head to Richard Foster’s "Statement of Actuarial Opinion," which begins on page 277. "In past reports, and again this year, the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law due to further legislative action to avoid substantial reductions in the Medicare physician fee schedule," Foster writes.

What he means is that Medicare’s reimbursements to doctors are scheduled to drop by 31 percent on January 1, 2013. Only then is Medicare solvent until 2016/2024. If Congress passes another of its numerous "doc fixes," Medicare’s insolvency will be even closer at hand. The optimistic insolvency estimate from the Trustees will require "unprecedented changes in health care delivery systems and payment mechanisms," without which Medicare fees "are very likely to fall increasingly short of the costs of providing those services."

"For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short rangeā€¦or the long range," writes Foster.

I wrote about this problem last March: how calculations of Medicare’s solvency assume drastic reductions to Medicare’s fee schedules, reductions that would cripple the ability of retirees to gain access to medical care. If we can’t even be honest about Medicare’s finances, how can we hope to ever reform the program?

Original Source: http://www.forbes.com/sites/aroy/2012/04/23/trustees-medicare-will-go-broke-in-2016-if-you-exclude-obamacares-double-counting/

 

 
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