The boards of trustees for the nation’s Medicare programs released a report Monday that showed an economic trend some experts have described as one of the most important fiscal developments in over 30 years is having an even more dramatic effect than most previously realised.
In their annual report, Medicare’s trustees said the program’s trust fund that provides hospital care to the country’s retirees — known as “Part A” — is expected to run out of money by 2030. This expiration date is four years later than earlier projections, a grace period that is due to federal spending on healthcare that is slower than ever due to savings from the implementation of the Affordable Care Act and other reforms.
“While today’s report focuses on Medicare, it reflects broader trends in the health care system toward much slower growth in costs, a trend that has continued into 2014,” wrote Jeanne Lambrew, the deputy assistant to the president for health policy, and Tim Gronniger, a senior policy adviser for the domestic policy council.
Overall, the lifespan of Medicare’s major trust fund has been extended 13 years since the passage of the Affordable Care Act. When the trust fund runs out, the federal government would be able to pay only part of the benefits owed to seniors, and that portion would keep declining over time.
Though the report highlighted the fact healthcare reform is helping to extend the life of the major Medicare trust fund, the trustees said more still must be done to shore up the long-term life of the program. The trustees estimated that without further action, the government would be able to pay out only 85% of Medicare benefits in 2030.
The Medicare trustees’ report builds on the overall optimism surrounding the slowing of healthcare costs in the U.S., which the trustees said on Monday were due to a mix of overall factors that include Obamacare, a weak economy, and other various reforms. Aside from the life extension of the Medicare trust fund, Medicare spending is slowing rapidly.
Earlier this month, the Congressional Budget Office released a report showing the slowdown in health costs would likely continue over the next 25 years, which mirrors the trustees’ findings. The CBO said the federal government would spend about $US250 billion less on major federal healthcare programs than it had forecast in 2010, the year the Affordable Care Act was signed into law.
At the time, Peter Orszag, the former director of the Office of Management and Budget, told Business Insider the Medicare spending growth decline represented the “biggest fiscal development” in more than three decades.
“Healthcare spending has always been the core fiscal problem facing the United States,” Orszag said. “If we had passed legislation that knocked down long-term Medicare spending projections by 35% it would easily qualify as the biggest fiscal development since the early 1980s — and the fact that the changes are occurring for multiple reasons doesn’t alter that conclusion.”
However, the news wasn’t all good.
Despite the optimism generated by the decline in healthcare spending, the Medicare trustees’ report contained a number of warnings about the future of the program and it urged lawmakers to take action to ensure the long-term viability of the program. The problem is still the same — a rapid rise in the U.S.’s over-65 population, combined with still-rising healthcare costs, will eventually drain the Medicare program down unless Congress intervenes.
Paul Spitalnic, the chief actuary for the Centres for Medicare and Medicaid Services, also warned many of Obamacare’s cost reforms that have helped decrease spending might be difficult to maintain. Specifically, Spitalnic raised questions about the ability of health providers to sustain price reductions required under the law.
“The Affordable Care Act is making important changes to the Medicare program that are designed, in part, to substantially improve its financial outlook,” Spitalnic wrote in the report. “While the ACA has been successful in reducing many Medicare expenditures to date, there is a strong possibility that certain of these changes will not be viable in the long range.”
The trustees for Social Security were less optimistic in their annual report, however. Their report, which was also released Monday, projected the Social Security would remain solvent through about 2034.
The massive retirement program’s long-term forecast was unchanged from last year. And the first need for Congress to step in might come by 2016, when the program’s disability fund will run dry, since millions more have joined the rolls of the program amid the economic downturn.
“Both of these vitally important programs are fiscally unsustainable over the long run and will require legislative intervention to correct,” Social Security and Medicare trustee Robert Reischauer said at a press conference Monday, adding, “The sooner the policymakers address these challenges, the less disruptive the unavoidable adjustments will be.”
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