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Medicare's Actuary Paints a Darker Picture Than Trustees Medicare's Actuary Paints a Darker Picture Than Trustees

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Medicare's Actuary Paints a Darker Picture Than Trustees

Spending on hospital and physician services would be more than three times higher than projected if Congress acts to reverse or phase out scheduled Medicare payment reductions, according to a new analysis that casts doubt on the rosier estimates offered by Medicare's trustees earlier this month.

The projections, released late Friday by the Centers for Medicare and Medicaid Services' independent actuary, show what would happen to the federal health care program in the likely event that Congress reverses a 29 percent physician pay cut in 2012. The illustrative scenario also demonstrates what happens if lawmakers phase out annual cuts to hospitals, nursing homes, and home health agencies, beginning in 2020.


Under such a scenario, federal spending on both hospital and physician services would climb far more quickly than the trustees have projected.

Under current law, Medicare would spend $220 billion on physicians in 2012. But that assumes the 29 percent cut goes into effect--something that is considered unlikely. So under the alternative scenario, Medicare would spend $248 billion in 2012 on physicians, or about 12.6 percent more.  At the same time, Medicare physician payment rates would decline to 57 percent of what private insurers pay in 2012, and eventually to 27 percent by 2085. 

Reductions to hospital payments are harder to figure. The health reform law requires about a 1 percent reduction in the way Medicare compensates hospitals and other providers for the generally higher cost of doing business each year. The goal is to squeeze providers so they operate more efficiently. But the formula could prove unworkable, the actuaries report.


The reason is that providers can increase their efficiency only so much before Medicare's pay cuts make them unprofitable. Under current law, about 15 percent of hospitals, nursing homes, and home health agencies could see their costs outpace what Medicare pays them. Eventually, the actuaries predict, about 40 percent of providers would become unprofitable by 2050.

It is the second time that actuaries have released a report that offers an alternative scenario. Medicare's trustees must make their long-range fiscal projections under current law, which does not take into account the likelihood that Congress will overturn key parts of it. For instance, it is a near certainty that Congress will again override the scheduled cuts to physician pay before they go into effect next year. Congress has reversed the cuts every year for the past nine.

In their May 13 report, the trustees said that projected Medicare costs over the next 70 years would be about 25 percent lower because of provisions in the year-old health reform law. Although the report warned that the hospital trust fund would be exhausted by 2024, five years earlier than previously projected, it nevertheless offered a more optimistic view of the long-term viability of Medicare as a whole.

The trust fund exhaustion date does not change under the actuaries' alternative scenario, but the long-range outlook shows that Medicare would become more costly than under current law.


“While the substantial improvements in Medicare’s financial outlook under the Affordable Care Act are welcome and encouraging, expectations must be tempered by awareness of the difficult challenges that lie ahead in improving the quality of care and making health care far more cost efficient,” the report concludes.

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This article appears in the May 23, 2011 edition of National Journal Daily PM Update.

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