The Medicare hospital trust fund is in dramatically better financial health than it was last year, primarily because of spending reductions enacted via last year's balanced-budget law, fund trustees said last week.
The fund, from which Medicare Part A payments are made, is now projected to go broke in 2008, seven years later than the estimate made last year.
Last year's report, which showed the fund to be in dire financial condition, was a factor in the passage of Medicare spending reductions and other policy changes in the balanced-budget law.
This year's report may have the opposite effect. Legislators from both parties hailed it as good news but said more should be done to shore up the fund's finances.
"I am looking forward to the recommendations of the National Bipartisan Commission on the Future of Medicare, due in less than a year, for a blueprint to ensure the long-term sustainability of Medicare," said Senate Finance Committee Chairman William Roth (R-Del.).
The 17-member commission has met twice, the first time in March. It was created by last year's balanced-budget law and will report to Congress by March 1999.
But observers say the 10-year life span of the fund means Congress may not have the impetus to pass Medicare reforms.
"This clearly reduces the heat to act," said Joseph Newhouse, professor of health policy and management at Harvard University and vice chair of the Medicare Payment Advisory Commission.
Nearly all the improvement resulted from spending restraints in last year's balanced-budget law, which slowed estimated Medicare spending by $115 billion over the five-year period ending in 2002.
"These outcomes are a direct result of the enactment of the Balanced Budget Act and the economy's recent strong performance," said Treasury Secretary Robert Rubin.
For the third straight year, expenditures from the fund exceeded revenues. It paid out $138 million in fiscal 1997 while taking in only $129 million (See chart). Hospitals received the bulk of the payments -- $89 billion. Home health agencies received about $17 billion; skilled-nursing facilities, about $13 billion; and managed-care plans, slightly more than $16 billion.
While the fund's solvency date of 2008 is seven years beyond last year's estimate, it is two years less than HCFA's estimate just months ago.
HCFA Administrator Nancy-Ann Min DeParle said the change to 2008 from 2010 was caused by a reduction in the Consumer Price Index, which measures inflation. That drop caused estimated revenues coming into the fund to decrease as well.
The midyear change did not affect the fund outflows, which remain a concern for the trustees. "More far-reaching measures will be needed to prevent trust fund depletion as the baby boom generation reaches age 65 and starts receiving benefits," the trustees said.