Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Health Insurance > Medicare Planning

Congress Debates Improved State Of Trust Funds

Your article was successfully shared with the contacts you provided.

WASHINGTON–Social Security and Medicare trust funds will remain solvent a year longer than previously estimated, fund trustees report.

The report prompted an intense effort by members of Congress from both sides of the aisle to use the data to their political advantage.

At the same time, the consensus of politicians–regardless of their perspective–is that the Part D prescription drug program as administered by the health insurance industry is working better than expected.

“I would like to start by paraphrasing Mark Twain and saying that reports of Medicare’s death have been greatly exaggerated,” commented Rep. Pete Stark, D-Calif., chairman of the Health Subcommittee of the House Ways and Means Committee, summing up a plethora of analyses about the solvency of the fund.

“Despite the gloom-and-doom forecasts and rhetoric from some of my colleagues, this year’s trustees report shows that Medicare remains solvent and sustainable,” said Stark at an emergency hearing he convened on the report.

Solvency projections over the years have been as few as 4 years and as many as 28 years, he said. “This year, as in most years past, solvency remains strong by historical standards. There is plenty of time to make the necessary adjustments needed to prolong the life of the trust fund.”

At the same time, the program faces “undeniable demographic challenges in future years,” Stark added. He called the report’s warning that funding of Medicare was at 45% “little more than an arbitrary, hidden hatchet designed to eliminate Medicare’s entitlement and continue the march toward privatization started in the 2003 Medicare law.”

The report said that the Social Security trust fund would remain solvent until 2041 and the Medicare fund until 2019.

The fund trustees said in their report that slight reductions in projected benefits and slightly higher tax collections had extended the projected dates that the trust funds would be depleted.

The sole witness at the Health Subcommittee hearing was Richard Foster, chief actuary at the Centers for Medicare and Medicare Services, Baltimore.

Foster said that savings through the prescription drug benefit under Medicare was “bigger than we thought, initially,” because benefit plans health insurers set up to administer the program were able to negotiate better prices than CMS felt they would be able to.

Foster said CMS thought the plans would initially be able to get a 15% discount, eventually raising it to 25%. In fact, the plans got a 27% discount in the first year.

In his opening statement, Foster said CMS would get a “moderate return” from the private plans that administer the program because of a risk-sharing agreement but that he expected that would change as the structure of agreement makes it less beneficial for plans as of 2008.

Rep. Mike Thompson, D-Calif., asked if plans were underbidding to gain market share, but Foster said that was unlikely because his staff checks out the bids.

The change in bids, which he estimated dropped about 10%, might have been due to plans being relatively conservative in the first year of the program. Foster testified that he expects that things will balance out over the next few years.

Stark wants to cut back the Medicare Advantage program because of estimates it is 12% more expensive than fee-for-service Medicare programs.

In his opening statement, dubbed Medicare Advantage the “the proverbial “elephant in the living room” in the trustee’s report.

“Because the private plans do not have their own fund, and payments are drawn from the regular Trust Funds, Medicare Advantage payments and their implications on program cost growth are not scrutinized or explicitly analyzed by the Trustees,” he said. “Yet the overpayments are directly and negatively affecting both solvency and general revenue spending–not to mention beneficiary premiums.”

Stark also said that the report does say the Medicare trustees expect a migration to Medicare Advantage in coming years from traditional Medicare plans.

“And we can see in the report how plans have overtaken physician spending and are now second only to hospitals in terms of the ranking of provider payments through the program–a pretty stunning development given that fewer than 1 in 5 beneficiaries are enrolled in Medicare Advantage,” he said.

A spokesman for the American Council of Life Insurers said his group would welcome a chance to provide its expertise to Congress in assuring the future soundness of the funds.

“As an industry that helps people achieve retirement security, we recognize Social Security’s important role, and its long-term solvency is paramount,” he said.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.