Today the Medicare Trustees released their annual report on the health of the Medicare program. The headlines will probably be filled with the news that report says that Medicare’s Hospital Insurance (HI) Trust Fund is now projected to be insolvent in 2024, which is five years sooner than the 2029 estimate in last year’s report. This is an important piece of the story, but don’t miss the key caveats offered by Medicare’s Chief Actuary on the very last page (p. 265) of the report, under “Statement of Actuarial Opinion.” A summary is below.

These “Projections” Are “Not Reasonable As An Indication of Actual Future Costs.”

• “While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require a physician fee reduction of an estimated 29.4 percent on January 1, 2012—an implausible expectation.” The Congressional Budget Office has estimated maintaining the current level of physician reimbursements under Part B will cost taxpayers roughly $300 B.”

The Budget Gimmicks in Congress’ Controversial Health Law Anticipate Medicare Prices Will Be “Considerably Below” Current Medicaid Prices, “Far Below” Private Insurance Levels.

• “Further, while the Affordable Care Act ….there is a strong likelihood that certain of these changes will not be viable in the long range. Specifically, the annual price updates for most categories of non-physician health services will be adjusted downward each year by the growth in economy-wide productivity. The best available evidence indicates that most health care providers cannot improve their productivity to this degree—or even approach such a level—as a result of the labor-intensive nature of these services. Without major changes in health care delivery systems, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance.”

These Budget Gimmicks Mean Congress Will Have to Spend More To Prevent “Severe Problems With Beneficiary Access to Care,” Which “Would Lead to Far Higher Costs for Medicare.”

• “Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to far higher costs for Medicare in the long range than those projected under current law.”

This Report Is Not a “Reasonable Expectation for Actual Program Operations” in the Short or Long Term.

• “For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable).”

Medicare’s Chief Actuary Gives Americans Recommended Reading for Medicare, Since Current Projections are “Poor Indicators” of the “Likely Future Financial Status of Medicare.”

• “I encourage readers to review the “illustrative alternative” projections that are based on more sustainable assumptions for physician and other Medicare price updates. These projections are available at http://www.cms.gov/ActuarialStudies/Downloads/2011TRAlternativeScenario.pdf. The Board of Trustees has convened an independent panel of expert actuaries and economists to consider these issues further and to make recommendations to the Board regarding the most appropriate long range growth assumptions for Medicare projections. To date the panel has concluded that the long-range Medicare cost growth assumptions underlying the projections in the 2010 Trustees Report (and used again in this year’s report) are not unreasonable. The panel further recommended continued use of a supplemental analysis, such as the illustrative alternative projections, for the purpose of illustrating the higher Medicare costs that would result if the physician payment reductions continued to be overridden by Congress and the productivity adjustments to most other provider payment updates were phased out. The panel’s ongoing work should help both to inform the selection of assumptions for the 2012 and later reports and to assess the sustainability of the Medicare price adjustments under current law. Although the current-law projections are poor indicators of the likely future financial status of Medicare, they serve the useful purpose of illustrating the exceptional improvement that would result if viable means can be found to permanently slow the growth in health care expenditures.”

Congress’ Controversial “Health Reform” Was Not Entitlement Reform.

• “The projections in this year’s annual report provide an unequivocal incentive to vigorously pursue the development of effective and sustainable new approaches, with the potential to make quality health care much more affordable.”

If the Economy Continues to Be Soft, Insolvency Could Occur Even Sooner.

• “Finally, the economic outlook remains more uncertain than usual. Due to the sensitivity of HI trust fund operations to wage increases and unemployment, the current slow recovery from the recent recession adds a significant further element of uncertainty to thetrust fund projections.”