The 2023 Medicare Trustees Report spelled good news for the program’s short-term viability but should not delay Congress from seeking a long-term solution that protects the health care of older Americans, experts agreed.
As part of a webinar this month sponsored by the American Academy of Actuaries, the Centers for Medicare & Medicaid Services’ (CMS) Chief Actuary Paul Spitalnik reported on the program’s finances as detailed in the report. Three other panelists shared insights on how Medicare’s Hospital Insurance trust fund might remain solvent beyond the currently projected exhaustion date, and more generally how to make the program more sustainable in the long-term.
For background, the Medicare Program consists of multiple parts:
Part A - Covers inpatient hospital and skilled nursing care, post-institutional home health care, and hospice care.
Part A has about 65 million enrollees and is funded primarily by Medicare payroll taxes (1.45% paid by employees and employers, each; 2.90% paid by self-employed; additional .90% paid by high-income earners; and no cap on annual taxable earnings as is the case with the Social Security payroll tax). Calendar year 2022 expenditures were $342.7 billion.
Part B - Covers physician services, outpatient hospital, diagnostic testing, durable medical equipment, ambulance, some additional services such as general home health care, and physician-administered drugs.
Part B has about 60 million enrollees and is funded approximately 30% by monthly premiums paid by Medicare beneficiaries ($164.90 standard premium for 2023 plus additional premiums charged to high-income earners) and 70% by government contributions coming from general taxation. A small portion of revenue stems from fees imposed on drug manufacturers. Calendar year 2022 expenditures were $436.7 billion.
Part D - Covers prescription drugs.
Part D has slightly over 50 million enrollees and is funded by premiums paid by Medicare beneficiaries (average monthly premium is about $32, funding about 15% of total revenues), additional premiums charged to high-income earners, general federal revenues, and state transfers. Calendar year 2022 expenditures were $125.7 billion.
Part C - Medicare Advantage program.
The Part C (Medicare Advantage) program is an option for Medicare beneficiaries that are enrolled in both Part A and Part B and live in the service area where the private plan of choice is offered. These plans are provided on a calendar-year basis by plan sponsors contracted with Medicare. Medicare Advantage plans, which typically include Part D coverage, now cover close to half of Medicare beneficiaries nationwide.
The Medicare program has grown dramatically in both enrollment and paid benefits over the past four decades. 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.
Key highlights of the 2023 Medicare Trustees report are as follows:
The Part A Hospital Insurance trust fund (a long term reserve that has been set aside to cover future costs) is projected to be depleted by the year 2031, three years later than forecast in last year's report. This is great news for the program's short-term viability, yet the eventual financial shortfall will need to be addressed to avoid reduction in program benefits.
The Inflation Reduction Act of 2022, intended to tamp down inflation and reduce the federal budget deficit, will impact Medicare in several ways:
• Reduces government expenditures for physician and outpatient services covered under Part B
• Increases expenditures for Part D through 2030
• Decreases Part D expenditures beginning in 2031
In the long-term, experts expect the Inflation Reduction Act of 2022 will be beneficial to the financial health of the Medicare program.
While the COVID-19 pandemic caused higher costs for acute treatment, those costs have been more than offset by deaths of seriously ill Medicare beneficiaries as well as reduced spending for non-COVID care.
The growing number of members portends long-term challenges. James Mathews, executive director of the Medicare Payment Advisory Commission (MedPAC), noted that the number of program beneficiaries is expected to increase from the current 65 million to 80 million in the next decade. At the same time, the number of workers supporting those on Medicare is projected to decrease 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 reducing Medicare Advantage plan payments in excess of payments made to Original Medicare. 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.
Marilyn Serafini, executive director of the Bipartisan Policy Center’s Health Program, said it is essential that Congress seek out a bipartisan solution that will keep Medicare fully functioning. 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 Original Medicare and Medicare Advantage, and re-evaluating the trust fund structure and accountability mechanisms.
It is extremely likely additional funds will be needed to support growing Medicare enrollment. 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 payroll or income taxes, to taxing health care benefits, or targeting solutions that would only impact more wealthy Americans or businesses.
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,” CMS Chief Actuary Spitalnic said. “It is a question of when it will be depleted.”
Until next time,
