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Medicare, SS Solvency Gain A Year

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Social Security and Medicare trust funds will remain solvent a year longer than previously estimated, fund trustees reported last week, prompting 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 all the 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.

While he clearly represents the liberal perspective, Rep. Pete Stark, D-Calif., chairman of the Health Subcommittee of the House Ways and Means Committee, summed up the plethora of analyses as to the solvency of the fund by stating, “I would like to start by paraphrasing Mark Twain and saying that reports of Medicare’s death have been greatly exaggerated.”

In comments at an emergency hearing he convened on the report, Stark said, “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.”

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.

“That said, while the program faces undeniable demographic challenges in future years, the so-called 45% “funding warning,” which has been triggered in this year’s report, is 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,” Stark said.

Specifically, the report said the Social Security trust fund will remain solvent until 2041, and the Medicare fund until 2019.

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

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

Regarding the prescription drug benefit under Medicare, Foster said savings through the program were “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%, but in fact the plans got a 27% discount in the first year.

Foster, in his statement, said CMS would get a “moderate return” from the private plans that administer the program because of a risk-sharing agreement, but that he expects that will change as the structure of the risk-sharing plans 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 replied that “they can’t get too carried away with this,” because his staff checks out the bids.

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

Regarding the Medicare Advantage program, which Stark wants to cut back because of estimates that it is 12% more expensive than fee-for-service Medicare programs, Foster was asked if CMS could provide more info on the plans. He responded by saying he would provide more information if the committee asked for it.

Foster also said under questioning that the Medicare trust fund’s solvency would be extended by 2 years if extra payments to Medicare Advantage were eliminated.

In addition, he said, beneficiaries enrolled in Medicare Part B pay an extra $2 per month to subsidize the extra payments to Medicare Advantage.

In his opening statement, Stark pointed to his interest in Medicare Advantage by calling it the proverbial “elephant in the living room” in the trustees 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 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.”


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