Last week, the Medicare trustees issued their annual report examining the state of the program’s finances. In that report, the Chief Actuary of the Centers for Medicare and Medicaid Services (CMS) provided clear indications that the “Patient Protection and Affordable Care Act”[i] will be anything but affordable. In an unprecedented move,[ii] the non-partisan Chief Actuary used his statement of actuarial opinion on the trustees report to warn that the unrealistic cost reductions mandated in the law will threaten access to care for seniors, thus likely resulting in higher federal spending than projected. The actuary went so far as to release an alternative scenario to quantify more realistic projections for federal Medicare spending.[iii]
While President Obama invoked the trustees report to claim the health law will “preserve Medicare for generations to come,”[iv] the Administration’s own actuary demonstrates that the Democrats’ rhetoric about health care reform has diverged from reality.
Less Access
Unrealistic projections. The health care law slows the growth of Medicare provider payment rates over time based on assumptions about productivity growth in the overall economy. But the Chief Actuary pointed out that health care has historically not been able to achieve the unrealistic levels of productivity growth the law assumes. Medicare payment rates, however, will grow at much slower rates, regardless of whether the law’s expectations are reasonable or not. The Chief Actuary estimated that the health care law’s impact on payments will accelerate over time, putting providers in an unsustainable financial position: “After 30 years…payment rates would be 28 percent lower than they would have been under the prior law. After 75 years, the reduction would be 56 percent.”[v]
“Severe problems with access to care” for seniors. Because the law imposes provider payment cuts that increase over time, Medicare payment rates will not keep pace with private sector insurance: “By 2019…Medicare rates would be relatively lower than those currently paid for Medicaid, and by the end of the 75-year period, Medicare payments would be only one-third of the relative current private health insurance prices and half of those for Medicaid. If such payment differentials were allowed to occur, Medicare beneficiaries would almost certainly face increasingly severe problems with access to care.”[vi]
Unprofitable medical facilities. The Chief Actuary previously estimated that as many as 15 percent of all facilities could become unprofitable by 2019 under the health care law.[vii] His alternative scenario goes even further, estimating that 25 percent of facilities would become unprofitable by 2030, and 40 percent by 2050, meaning that providers “would have to withdraw from providing services to Medicare beneficiaries.”[viii]
Unsustainable Spending
Federal spending will rise. The actuary’s office “talked informally with several prominent health economists” to measure the impact of the health law’s productivity adjustments; “all of them believed that the payment reductions were unsustainable.”[ix] Because experts agree the law’s spending projections are unsustainable and therefore unrealistic, the actuary crafted a more sustainable scenario that presumes most of the productivity adjustments in the law are overridden by Congress, and a scheduled 30 percent pay cut for physicians over the next three years does not take effect. As a result, federal spending within the Medicare program will rise faster than official estimates.
Most supposed savings “would go away”. The Chief Actuary notes under his more realistic alternative projections, “most of the significant change in the projected level of Medicare expenditures between the 2010 trustees report and last year’s report would go away.”[x] In other words, the Medicare “savings” in the health care law are based almost entirely on unrealistic projections that cannot be sustained in the long term.
Medicare physician spending more than double official projections. The actuary projects that under his alternative scenario, Medicare physician spending under Part B would grow by more than double the official projections. Part B spending would comprise 2.47 percent of GDP in 2080 under the official projections, compared to a whopping 5.07 percent under the more realistic alternative scenario.[xi]
The trustees report notes that the Medicare hospital insurance trust fund remains under-funded in both the short term and the long term.[xii] In addition, for the fifth straight year the trustees issued a Medicare funding warning that indicates the program is drawing a dangerously high amount of its funding from general revenues, thus placing fiscal pressures on other national priorities like education and defense.[xiii]
But the official report actually understates the fiscal problems Medicare faces. The Chief Actuary, along with all outside experts he consulted, believes the major savings provisions in the law are unsustainable and likely to be overridden by Congress. Moreover, to the extent they actually occur, the savings provisions themselves have been dedicated not to preserving the Medicare program, but to funding new entitlements. As the actuary has noted, the bill’s Medicare savings “cannot be simultaneously used to finance other federal outlays (such as the coverage expansions) and to extend the [life of the Medicare] trust fund, despite the appearance of this result from the respective accounting conventions.”[xiv]
In fact, the Medicare program could end up in a much worse financial situation than existed prior to the health care law’s passage—because Medicare savings that the actuary predicts will not materialize over the long term have already been re-directed to finance new entitlements for younger Americans. Based on the Chief Actuary’s repudiation of the trustees report, many may therefore question whether and why Democrats have left Medicare in a weaker financial condition—and how making a fiscally unsustainable system worse constitutes health care “reform.”
[i] Senate-passed bill (P.L. 111-148) text available at http://www.opencongress.org/bill/111-h3590/text; reconciliation bill (P.L. 111-152) text available at http://www.opencongress.org/bill/111-h4872/text.
[ii] “Richard Foster for President,” Wall Street Journal August 9, 2010, http://online.wsj.com/article/SB10001424052748703309704575413263344491010.html
[iii] Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates” by John Shatto and Kent Clemens, August 5, 2010, http://www.cms.gov/ActuarialStudies/Downloads/2010TRAlternativeScenario.pdf
[iv] President’s Weekly Radio Address on Medicare Trustees Report, August 7, 2010, http://www.whitehouse.gov/the-press-office/2010/08/07/weekly-address-president-obama-highlights-benefits-seniors-under-patient
[v] Illustrative Alternative Scenario, p. 17
[vi] Illustrative Alternative Scenario, p. 5
[vii] Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as amended, April 22, 2010, http://www.cms.gov/ActuarialStudies/Downloads/PPACA_2010-04-22.pdf
[viii] Illustrative Alternative Scenario, p. 6
[ix] Illustrative Alternative Scenario, p. 6
[x] Illustrative Alternative Scenario, p. 17
[xi] Illustrative Alternative Scenario, p. 15
[xii] Trustees Report, pp. 70-72, 79
[xiii] Trustees Report, pp. 52-54
[xiv] Estimated Financial Effects of the “Patient Protection and Affordable Care Act,” as amended, on the Medicare trust fund, April 22, 2010, http://www.cms.gov/ActuarialStudies/Downloads/PPACA_Medicare_2010-04-22.pdf
