The Medicare Trustees Report released today shows that the Hospital Insurance (HI) Trust Fund will be insolvent in 2024, the same as last year’s estimate, but action is needed to secure its long-term future. Read the 2012 Medicare Trustees' report by clicking here.

Quotes below taken from page 277 of the 2012 Medicare Trustees’ Report Has a “Statement of Actuarial Opinion” from Richard Foster, Chief Actuary, CMS.

Foster Highlights “Important Caveats” In Official Estimate

“It is my opinion that (1) the techniques and methodology used herein to evaluate the financial status of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund are based upon sound principles of actuarial practice and are generally accepted within the actuarial profession; and (2) with the important caveats noted below, the principal assumptions used and the resulting actuarial estimates are, individually and in the aggregate, reasonable for the purpose of evaluating the financial status of the trust funds under current law, taking into consideration the past experience and future expectations for the population, the economy, and the program.”

Actual Spending Will Exceed Current Projections

“In past reports, and again this year, the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law due to further legislative action to avoid substantial reductions in the Medicare physician fee schedule. 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 30.9 percent on January 1, 2013—an implausible expectation.”

“Strong Likelihood” That Obamacare’s Medicare Cuts and IPAB “Will Not Be Viable In The Long Range”

“Further, while the Affordable Care Act makes important changes to the Medicare program and substantially improves its financial outlook, 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 Reform, Medicare Will “Fall Increasingly Short” Of Paying Providers For Actual Costs – Would Be Lower Than Medicaid Prices, “Which Have Already Led To Access Problems For Medicaid Enrollees”

“Without unprecedented changes in health care delivery systems and payment mechanisms, 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. 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 substantially higher costs for Medicare in the long range than those projected under current law. "

Official Medicare Estimates “Do Not Represent A Reasonable Expectation For Actual Program [Costs] In Either The Short Range…Or The Long Range”

“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). 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 summarized in appendix V.C of this report, and additional details are available at http://www.cms.gov/ActuarialStudies/Downloads/2012TRAlternativeScenario.pdf.”

The Alternate Scenario Is Not A PR Effort, Such Supplementary Analysis Was Recommended By Independent Actuaries and Economists

“In 2010, the Board of Trustees 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. In their interim report, the Panel concluded that the long-range Medicare cost growth assumptions underlying the projections in the 2010 Trustees Report (and used again in the 2011 report) were 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 or constrained. At their final meeting in December 2011, the Panel members reached a unanimous consensus on recommendations for refining the long-range cost growth assumptions for Medicare projections. In addition, they suggested a number of improvements to the detailed short-range assumptions. The Office of the Actuary concurred with all of the Panel’s findings and recommendations and has worked with the Trustees to implement as many of them as possible for the 2012 annual report.”

Further Analysis is Still Forthcoming, But the Actuary Remains “Doubtful” About Feasibility of Projected Medicare Spending

“The members also considered the possible long-range implications of the productivity adjustments required under current law. Their discussions focused on several plausible scenarios, with varying responses by the health sector to the slower Medicare payment updates and with differing effects on providers’ financial viability, beneficiaries’ access to health services, and the quality of care. The Panel noted both encouraging and worrisome possibilities in these discussions, and their final report, which is not yet completed, is expected to consider the scenarios in detail. On balance, however, I remain doubtful about the feasibility of the statutory productivity adjustments in the long range.”

Estimates Show Urgent Need for Medicare Reform, An “Unequivocal Incentive To Vigorously Pursue The Development Of Effective And Sustainable New Approaches”

“Although the current-law projections are probably poor indicators of the future financial status of Medicare, they serve the useful purpose of illustrating the exceptional improvement that would result if viable means could be found to permanently slow the growth in health care expenditures. The Affordable Care Act establishes a broad program of research into innovative new delivery and payment models in an effort to improve the quality and cost-effectiveness of health care for Medicare—and, by extension, for the nation as a whole. 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.”

Economic Outlook Remains “More Uncertain Than Usual,” So Medicare’s Outlook Could Be Worse

“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 the trust fund projections.”