The 2017 Medicare Trustees Report: Hospital Trust Fund Remains in Short and Long Term Trouble, Supplemental Trust Fund is Adequately Financed

Posted by Rafael Gonzalez on Jul 24, 2017 11:22:30 AM

Reading annual reportOn July 13, 2017, the Boards of Trustees for the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds published its 2017 Annual Report. “The Medicare program has two separate trust funds, the Hospital Insurance Trust Fund (HI) and the Supplementary Medical Insurance Trust Fund (SMI). HI, otherwise known as Medicare Part A, helps pay for hospital, home health services following hospital stays, skilled nursing facility, and hospice care for the aged and disabled. SMI consists of Medicare Part B and Part D. Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees. Part C serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private Medicare Advantage Plans (MAP). Medicare Advantage Plans receive prospective, capitated payments for such beneficiaries from the HI and SMI Part B trust fund accounts.”

“The Social Security Act established the Medicare Board of Trustees to oversee the financial operations of the HI and SMI trust funds. The Board has six members. Four members serve by virtue of their positions in the Federal Government: the Secretary of the Treasury, who is the Managing Trustee; the Secretary of Labor; the Secretary of Health and Human Services; and the Commissioner of Social Security. Two other members are public representatives whom the President appoints and the Senate confirms. The Administrator of the Centers for Medicare & Medicaid Services (CMS) serves as Secretary of the Board.”

The Social Security Act requires that the Board, among other duties, “report annually to the Congress on the financial and actuarial status of the HI and SMI trust funds. The 2017 report is the 52nd that the Board has submitted.” As I have done since 1990, what follows is a verbatim review of the of information, statistics, analysis, and predictions as published in the 2017 Medicare Trustees Report, which can be found at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2017.pdf

In 2016

The Report indicates that “in 2016, Medicare covered 56.8 million people: 47.8 million aged 65 and older, and 9.0 million disabled. Over 32% of these beneficiaries have chosen to enroll in Part C private health plans that contract with Medicare to provide Part A and Part B health services. Total expenditures in 2016 were $678.7 billion, and total income was $710.2 billion, which consisted of $700.4 billion in non-interest income and $9.8 billion in interest earnings. Assets held in special issue U.S. Treasury securities increased by $31.5 billion from $263.2 billion to $294.7 billion.”

Short-Range Results

The Report states that “the estimated depletion date for the HI trust fund is 2029, one year later than in last year’s report. As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years. HI expenditures are projected to be lower than last year’s estimates, mostly due to lower inpatient hospital utilization assumptions and lower-than-expected spending in 2016.”

The Report shows that “in 2016, HI income exceeded expenditures by $5.4 billion. The Trustees project modest surpluses to continue in 2017 through 2022, with a return to deficits thereafter until the trust fund becomes depleted in 2029. The assets were $199.1 billion at the beginning of 2017, representing about 67 percent of expenditures during the year, which is below the Trustees’ minimum recommended level of 100 percent. The HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003. Growth in HI expenditures has averaged 2.1 percent annually over the last 5 years, compared with non-interest income growth of 5.9 percent. Over the next 5 years, projected annual growth rates for expenditures and non-interest income are 5.7 percent and 5.8 percent, respectively.”

The Report indicates that “the SMI trust fund is expected to be adequately financed over the next 10 years and beyond because premium income and general revenue income for Parts B and D are reset each year to cover expected costs and ensure a reserve for Part B contingencies. A hold-harmless provision in the law restricted Part B premium increases for most beneficiaries in 2017 to an average increase of about $4.00 per month. However, for the 30% of beneficiaries to whom the provision does not apply, the 2017 Part B monthly premium rate increased from $121.80 to $134.00.”

The Report also demonstrates that “Part B and Part D costs have averaged annual growth of 5.4% and 8.3%, respectively, over the last 5 years, as compared to growth of 3.7% for GDP. Under current law, the Trustees project an average annual Part B growth rate of 7.8% over the next 5 years; for Part D, the estimated average annual increase in expenditures for these 5 years is 6.4%. The projected average annual rate of growth for the U.S. economy is 5.2% during this period, significantly slower than for Part B and Part D.”

Long-Range Results

The Report provides that “for the 75-year projection period, the HI actuarial deficit has decreased to 0.64% of taxable payroll from 0.73% of taxable payroll in last year’s report. The 0.09% of payroll decrease in the actuarial deficit was primarily due to lower spending in 2016 and lower projected utilization of inpatient hospital services than were previously estimated.”

The Report indicates that “Part B outlays were 1.6% of GDP in 2016, and the Board projects that they will grow to about 2.6% by 2091 under current law. The long-range projections as a percent of GDP are slightly higher than those in last year’s report. The Board estimates that Part D outlays will increase from 0.5% of GDP in 2016 to about 1.2% by 2091. These long-range outlay projections, as a percent of GDP, are slightly lower than those shown in last year’s report.”

The Report provides that “transfers from the general fund finance about three-quarters of SMI costs and are central to the automatic financial balance of the fund’s two accounts. Such transfers represent a large and growing requirement for the Federal budget. SMI general revenues currently equal 1.7% of GDP and would increase to an estimated 2.7% in 2091.”

Conclusion

The Report concludes that “total Medicare expenditures were $679 billion in 2016. The Board projects that expenditures will increase in future years at a faster pace than either aggregate workers’ earnings or the economy overall and that, as a percentage of GDP, they will increase from 3.6% in 2016 to 5.9% by 2091. If the reduced price increases for physicians and other health services under Medicare are not sustained and do not take full effect in the long range as in the illustrative alternative projection, then Medicare spending would instead represent roughly 9.0% of GDP in 2091. Growth under any of these scenarios, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.”

The Trustees project that “HI tax income and other dedicated revenues will fall short of HI expenditures in most future years. The HI trust fund does not meet either the Trustees’ test of short-range financial adequacy or their test of long-range close actuarial balance. The Part B and Part D accounts in the SMI trust fund are expected to be adequately financed because premium income and general revenue income are reset each year to cover expected costs. Such financing, however, would have to increase faster than the economy to cover expected expenditure growth.”

The financial projections in this report indicate “a need for substantial steps to address Medicare’s remaining financial challenges. Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be. Moreover, the early introduction of reforms increases the time available for affected individuals and organizations—including health care providers, beneficiaries, and taxpayers—to adjust their expectations and behavior. The Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address the depletion of the HI trust fund and the projected growth in HI (Part A) and SMI (Parts B and D) expenditures.”

About Rafael Gonzalez

Rafael Gonzalez, Esq. is President of Flagship Services Group, the only national Medicare Secondary Payer services provider focusing on and offering comprehensive mandatory reporting, conditional payments, and set aside allocation compliance services to the property and casualty insurance industry. He speaks and writes on the effects of Medicare and Medicaid compliance issues on the auto, liability, no-fault, and work comp insurance industry, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at www.flagshipservicesgroup.com/blog. He can be reached at rgonzalez@flagshipsgi.com or 813.967.7598.

Topics: Medicare Law