Study pushes back Medicare fund's end, sticks to Social Security's

Health and Human Services Secretary Sylvia Burwell, center, flanked by Treasury Secretary and Managing Trustee Jacob J. Lew, left, and Labor Secretary Thomas E. Perez, speaks at a news conference at the Treasury Department in Washington, Monday, July 28, 2014, to discuss the release of the annual Trustees Reports. (AP Photo/Susan Walsh)
Health and Human Services Secretary Sylvia Burwell, center, flanked by Treasury Secretary and Managing Trustee Jacob J. Lew, left, and Labor Secretary Thomas E. Perez, speaks at a news conference at the Treasury Department in Washington, Monday, July 28, 2014, to discuss the release of the annual Trustees Reports. (AP Photo/Susan Walsh)

WASHINGTON -- The Medicare trust fund for hospital costs will be exhausted in 2030, and the old-age trust fund for Social Security will be depleted in 2033 if Congress makes no change to the existing law, President Barack Obama's administration said Monday.

The outlook for Medicare -- the $583 billion U.S. health program for the elderly and disabled -- has improved significantly, mainly because spending on hospital care was lower than expected last year, the administration said.

The forecasts came in the government's annual report on the outlook for trust funds of the two programs, which together account for about 40 percent of all federal spending.

Social Security provides benefits to 59 million people, and an average of about 10,000 baby boomers become eligible for them each day. Payroll taxes and other revenue dedicated to Social Security would be sufficient to pay about three-fourths of promised benefits if its trust fund runs out, administration officials say.

The Medicare trust fund pays for hospital visits, nursing care and related services for Medicare beneficiaries. Its assets fell $7.1 billion in 2013 to $281 billion, less than one-third the reduction of a year earlier, according to the report.

With the aging of the population, the number of Medicare beneficiaries is also growing rapidly.

Reports from the trustees -- four federal officials and two public representatives -- are largely prepared by career civil servants who provide an assessment of the programs' finances.

In their last report in May 2013, the trustees said that under existing law, Medicare's hospital insurance trust fund would be exhausted in 2026 and the Social Security trust fund in 2033. The comparable dates in the prior year's report were 2024 for Medicare and 2033 for Social Security.

The financial condition of Medicare has benefited from a slowdown in national health spending, attributed in part to the Patient Protection and Affordable Care Act, which curbed Medicare payments to many health care providers and encouraged them to find more efficient ways of delivering care. The trustees have also cited slow growth of wages and prices after the recession as a factor restraining the growth of Medicare.

The trustees regularly urge Congress to shore up the finances of Medicare and Social Security, but the politics of the programs -- which are popular with voters of both parties -- reduce the likelihood of major or immediate changes.

Medicare's finances are a flash point in health policy debates between Republicans, who have proposed converting the program into private insurance subsidized by the United States, and Obama. Unusually slow growth in the program's spending, payment cuts under the health law and debt-reduction legislation have extended the life of the fund, called Part A.

"Medicare is considerably stronger than it was just four years ago," Sylvia Mathews Burwell, secretary of the Department of Health and Human Services and a trustee for the program, said Monday at a news conference. "Cost growth is down. The quality of the care our parents and grandparents are receiving is improving."

By contrast, the fund that guarantees Social Security disability payments remains in urgent need of a fix, the trustees warned. As they warned in last year's report, the trustees said the disability fund will run out of money at the end of 2016, meaning that only 81 percent of disability benefits could be paid unless Congress comes up with a solution.

The status of the larger Old Age and Survivors trust fund remains unchanged, with the balance projected to hit zero in 2033, after which current taxes would cover 77 percent of promised benefits, according to the report.

In the short term, the only way to resolve the disability trust fund's problems will be to change the current rule that allocates taxes between the disability and old-age trust funds, Treasury Secretary Jacob Lew said.

That shift would shore up the disability system at the cost of somewhat weakening the finances of the retirement system.

But "there's probably no other alternative" for solving the disability problem by the end of 2016, Lew said. Congress so far has shown no desire to consider more long-term changes in the disability system.

Medicare spending per beneficiary, including outpatient services and prescription drugs that are paid for from separate trust funds that can't be exhausted, was unchanged from 2012 to 2013. Spending per beneficiary under Part A -- for hospital care and related services -- fell for the second year in a row.

Growth in Medicare Advantage plans, offered by private insurers including Humana Inc. and UnitedHealth Group Inc. accelerated. About 1.3 million people joined the plans in 2013, raising enrollment to 14.8 million, or 28 percent of all Medicare beneficiaries. About one-third of Medicare beneficiaries are projected to be in the private plans by 2023.

Medicare's actuaries said that fewer people than they expected sought hospital care in 2013 and that those patients used cheaper services when they did. It remains unclear whether that is due to economic pressure on patients or to changing practices by doctors and hospitals, who have been encouraged under the Affordable Care Act to better coordinate their care and avoid unnecessary readmissions to the hospital.

"The jury's yet out as to whether we can really count on the pace of cost growth being reduced," Doug Holtz-Eakin, president of the American Action Forum -- an advocacy group that has opposed the Affordable Care Act -- and a former head of the Congressional Budget Office, said in a phone interview. "My concern is this will take pressure off the Congress and the administration to deal with the real problem, and we run the risk of a very bad surprise down the road."

Medicare spending would grow much faster if provisions of the Affordable Care Act that control cost growth were repealed, the trustees said. Under one "illustrative scenario" that included repeals of several provisions of the law, Medicare spending would consume more than 8 percent of gross domestic product by 2080, compared with just more than 6 percent under current law.

Obama has sought to keep the current structure of Medicare largely intact and allow changes wrought by his health care law to take effect. In April, the Congressional Budget Office said the program would cost $1,000 less per patient than it had projected in 2010, the year the law was passed.

Republicans have also lobbied to raise Medicare's eligibility age to 67, a proposal Obama hasn't ruled out as part of a larger budget deal that would include tax increases. Republicans have rejected any budget agreement increasing taxes.

"The president is ready to work with Congress on enacting responsible reforms, and he is prepared to make tough choices," Lew said. "The president will not support any proposal that hurts Americans who depend on these programs today, and he will not support any proposal that slashes benefits for future retirees."

Information for this article was contributed by Robert Pear of The New York Times; by Alex Wayne and Kasia Klimasinska of Bloomberg News; and by David Lauder of the Tribune Washington Bureau.

A Section on 07/29/2014

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