Despite Short-Term Improvements, Medicare Still Needs a Capitol Hill Intervention

May 16 Medicare Webinar

Despite Short-Term Improvements, Medicare Still Needs a Capitol Hill Intervention

The 2023 Medicare Trustees Report spelled good news for the program’s short-term viability but should not delay Congress from swiftly taking action to find a long-term solution that protects the health care of older Americans, Medicare experts agreed.

As part of a webinar sponsored by the Academy, the Centers for Medicare & Medicaid Services’ (CMS) top actuary gave an overview of the program’s finances as detailed in the report, while three other panelists shared their insights on how Medicare’s Hospital Insurance trust fund could be solvent beyond its current 2031 exhaustion date, and more generally how to make the program more sustainable in the long term.

Key Webinar Highlights

Medicare reserve depletion date extended three years to 2031.
Enactment of Inflation Reduction Act firmed up bottom line.
COVID-19 deaths of seriously ill beneficiaries led to short-term savings.
Growing number of program members spells long-term challenges.
Congressional action to address cost and funding mechanisms would improve sustainability.

Paul Spitalnic, CMS’ chief actuary, detailed the rapid growth in the program during the past four decades. Back in 1982, Medicare benefits totaled $46.6 billion, or 1.4% of the nation’s gross domestic product (GDP). The 2023 report found that had grown to $911.2 billion overall, or 3.6% of GDP.

Though the coronavirus pandemic tamped down on costs in recent years, Medicare spending is expected to return to pre-pandemic levels. That said, Spitalnic detailed three drivers of lower inpatient hospital per capita spending in traditional fee-for-service (FFS) Medicare that will have longer-term effects, thereby lowering expected post-pandemic spending compared to previous projections.

These include lower average morbidity among beneficiaries who survived the pandemic; a greater share of dual-eligible beneficiaries (who have higher average morbidity) enrolling in Medicare Advantage, resulting in lower average morbidity among remaining FFS enrollees; and a shift of joint-replacement procedures from inpatient to outpatient settings.

Another change benefitting the program was the passage of the Inflation Reduction Act. The new law reduces government expenditures for physician services and outpatient services covered under Part B. While it does increase expenditures for the Part D prescription drug benefit through 2030, that cost will begin to decline afterward, Spitalinic stated.

Given that program expenses are expected to rise in the long term, jeopardizing the ability to cover all Medicare’s program costs, several experts during the webinar weighed in with recommendations on how to keep Medicare viable in the years to come.

James Mathews, executive director of the Medicare Payment Advisory Commission (MedPAC), noted that the number of program beneficiaries has risen from 20 million in 1970 to 65 million currently, and is expected to increase to 80 million in the next decade or so. This is happening at the same time as the number of workers supporting those on Medicare falls from 4 per enrollee to 2.5 per enrollee.

To control costs, MedPAC is advising cuts to post-acute care payments in 2024 as well as making changes to Medicare Advantage plan payments, including changes to the risk adjustment program and to how benchmarks are calculated, and to the quality bonus program, all of which have contributed to excess payments. MedPAC also continues to advocate for reductions in Part D plans’ reliance on cost-based reinsurance and improved incentives to manage benefits. However, Mathews said a hike in hospital payment rates is necessary to cover rising hospital costs.

Meanwhile, it is essential that Congress begin to seek out a bipartisan solution that will keep Medicare fully functioning, said Marilyn Serafini, executive director of the Bipartisan Policy Center’s Health Program. Her group is currently in the midst of crafting recommendations to improve the program in the long-term.

It is developing a set of principles to guide policymakers, including improving the enrollment process, simplifying and improving the traditional Medicare benefit, promoting price competition in both traditional Medicare and Medicare Advantage, and re-evaluating the trust fund structure and accountability mechanisms.

For now, however, elected officials seem more content to say they won’t change Medicare than to craft a solution that could potentially agitate some voters, she added.

There is also the issue of how to raise any additional funds that may be needed to support a growing Medicare program. Bowen Garrett, senior health fellow at the Urban Institute, noted that Congress in the past has always acted when the program neared fund exhaustion—as is happening now. That’s for good reason, as doing nothing “would be a significant stressor on providers.”

The Urban Institute has examined 12 different options to raise revenues, ranging from an across-the-board increase in either payroll or income taxes, to taxing health care benefits, or targeting solutions that would only impact more wealthy Americans or businesses. Different options would have different effects in terms of the amount of revenue raised, the complexity of the option, and their impacts on health equity.

Regardless of the path taken, there was broad agreement for congressional action in the near future to save Medicare for future generations. “Demographics are pretty clear,” Spitalnic said. “It is a question of when it will be depleted.”

The webinar recording and slides are available free of charge to all Academy members. To access them, log in to your member profile.