Don't sweat just yet, healthcare providers. Heck, it may take until next year for those billions of dollars in enhanced reimbursements that were celebrated at that historic Medicare bill signing last December to disappear like pocket change in a casino.
Last week's Medicare report that advanced the insolvency date for the Part A trust fund by seven years to 2019-a record acceleration in the history of such projections-is not just another Chicken Little prophecy. A combination of newly expanded benefits, changes in the U.S. economy, still-high healthcare cost increases and the looming retirement of baby boomers will turn full marketbasket updates into handfuls of coal.
The estimate comes from Medicare's chief actuary, Richard Foster, the same man who two weeks ago caused a furor with revelations that he was silenced by former CMS Administrator Tom Scully, who stopped him from telling Congress that it was being lied to about the cost of the new prescription drug benefit. Freed from actuarial purgatory, Foster last week had even more cold water to throw on those who celebrated Medicare reform prematurely.
One of his revelations had to do with health plans. Remember that $14 billion in lucre proffered to health plans to lure them into Medicare managed care? Turns out it will cost at least $46 billion over 10 years unless it's trimmed back.
Two years of the foreshortened trust-fund balance are attributable to the Medicare Prescription Drug, Improvement and Modernization Act, with half of that in payments to rural providers, the report said. Two more years of fund life span will be lost to higher healthcare spending and lower tax revenues.
The fiscal outlook is actually far worse than it seems, because it is based on the assumption that drastic cuts to physician payments will be carried out, reductions that would lower payments to doctors by more than one-third from 2006 to 2012. There is no way that such cuts can happen and have anyone left to provide services to beneficiaries. Still, doctors won't get full updates, and hospitals are almost certain to lose part of the $25 billion they won last year.
Revenue solutions to the problem are not likely in the near term. The current 2.9% payroll tax that funds Medicare could be increased, but that's a tax increase on both employers and workers at a time when wages are flat and good-paying manufacturing jobs are disappearing.
Even with the cuts to providers, tough choices must be made to avoid what the report estimates will be a staggering $27.7 trillion in unfunded Medicare liabilities over the next 75 years. Long term, that will include extending the age of eligibility, forcing wealthier seniors to pay more out of pocket for Medicare and changing the drug benefit significantly, especially the ability to negotiate lower costs.
At the release of the trustees' report last week, HHS Secretary Tommy Thompson said Foster's gloomy outlook fails to take into account provisions in the Medicare reform act to reduce fraud and abuse in billing, control hospital costs by improving preventive care for seniors, make lower-priced generic drugs available quicker and lure more seniors into private health plans, where costs might be controlled more easily.
Those are noble goals, but most of those changes come in the form of small-scale demonstration projects and limited grant programs. Such wholesale changes to the healthcare system are a long way off.
As the Medicare trustees stated: "Legislative action to remedy (the financing) situation will be required shortly." Providers better beef up their lobbying muscles now.