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Actuaries Concerned About Medicare Trends

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NU Online News Service, June 15, 2005 3:15 p.m. EDT -

While Medicare’s financial condition shows no deterioration in 2005, current trends do require immediate action, said a report issued recently by the American Academy of Actuaries.

The AAA Issues Brief quoted the 2005 Medicare Trustees Report saying the Hospital Insurance trust fund, which pays for hospital services, will be depleted one year later than previously expected, but HI expenditures now exceed HI non-interest income.

“In addition, Medicare expenditures will continue to consume an increasing share of federal outlays and GDP,” the trustees reported stated.

The Academy’s Medicare Steering Committee did express concern about certain financial trends evident in the Trustees’ report.

“The HI trust fund fails to meet the test of short-term financial adequacy because HI trust fund assets will fall below annual expenditures within the next 10 years,” the Committee report stated.

In addition, the HI trust fund fails to meet the test of long-range actuarial balance.

“HI expenditures started exceeding HI non-interest income in 2004,” the Committee report stated. “By 2020 when trust fund assets are expected to be depleted, tax revenues would cover only 79% of the program costs, and this share will decrease rapidly thereafter. The trust fund depletion date is expected to arrive one year later than projected last year, due in part to slightly lower hospital expenditures and slightly higher payroll tax revenues.”

The Committee report stated that efforts must be made not only to reduce the strain Medicare will put on the federal government in the coming decades, but also reduce the cost of health care for the elderly in general.

“Shifting more program costs to workers through increased payroll or to beneficiaries through higher premiums or increased cost-sharing, may reduce federal outlays for Medicare, but it will not reduce the share of the economy devoted to health expenditures,” the report stated.


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