EVENTS

Date:	Wednesday, May 13, 2009
Time:	9:15 AM -- 11:00 AM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI

WASHINGTON, MAY 14, 2009--The financial status of Medicare has deteriorated over the past year. Richard Foster, chief actuary at the Center for Medicare and Medicaid Services (CMS), highlighted key points of the 2009 Medicare Trustees Report, released on May 12, at an AEI forum the next day. He said that the Hospital Insurance (HI) Trust Fund, which funds hospital care provided to the nation's seniors under Medicare Part A, shrank by $4.7 billion as the program spent more than it took in during 2008. According to the analysis by the CMS Office of the Actuary, the trust fund may be depleted by 2017, at which point the program could no longer pay for all of the benefits promised under current law.

Foster went on to explain that the Medicare Part B trust fund, which covers outpatient care, is not expected to decline rapidly. Rising costs will place pressure on seniors, who pay 25 percent of the cost of the program in the form of premiums, as well as on taxpayers, as funds from general revenue pay for the other 75 percent of the program. But Part B is not facing imminent insolvency. This assessment remains true even when using the more likely assumption that physician fees will not be cut sharply, as mandated by the Sustainable Growth Rate provision under current law. As for Medicare Part D, Medicare's drug benefit, Mr. Foster asserted that the program is not only fiscally sound, it also has cost much less than projected in 2004 Medicare Trustees' Report. He went on to call the Part D market for prescription drugs a "well-functioning competitive system."

The root of Medicare's woes is the fact that the rate of growth of health care spending outpaces the rate of growth of the rest of the economy, according to Mark McClellan, M.D., director of the Engelberg Center for Health Care Reform at the Brookings Institution and a former CMS administrator. He suggested a need to "bend the cost-growth curve" and offered suggestions for accomplishing this goal, such as reducing rehospitalizations, promoting prevention, better coordinating care, eliminating wasteful tests and scans, and promoting the effective use of health information technology. McClellan underscored that the purpose of these delivery system reforms is to get more value without restricting choice. He also acknowledged that a solution will probably involve, in addition to structural changes, increased taxes, reduced benefits, or both.

AEI's Bill Thomas, the former chairman of the House Committee on Ways and Means, suggested taking the general revenue contributions to Medicare off autopilot and subjecting them to annual or biennial congressional budget review. This would keep the general public more informed on just how much money is being taken away from other priorities to fund Medicare and would strengthen political accountability for how much society sacrifices for the program.

James Capretta, a fellow at the Ethics and Public Policy Center and former associate director of the White House Office of Management and Budget, stated bluntly that "the reason the health care system is the way it is today is because of Medicare." He then criticized the fee-for-service model used by Medicare and questioned whether current cost containment proposals--such as the effective use of health information technology, comparative effectiveness research, bundled service payments, and value-based purchasing--were up to the task of saving the program. He argued that Medicare is especially challenged partly because of its status as a government program. The political process virtually requires open networks and equal payment rates to all licensed physicians, whether they provide high-quality care or not. Legislation and regulation protect the market share of incumbents, stifling competition. Since they pay little or nothing at the point of service for their care, Medicare beneficiaries stand to gain little from conservative practice styles that refrain from proliferating the use of services--even when those services provide little or no value in terms of patient outcomes.

Asked how the potential savings from reform proposals might be used, McClellan indicated that some of those savings would go toward expanding coverage and not toward dealing with Medicare's financial troubles. The latter will have to be addressed in some way, however, and soon. Foster pointed out that this is the fourth consecutive year that Medicare's dedicated revenue has fallen significantly short of program outlays over the next seven years (known as the 45 percent trigger). As a result, the president must propose legislation responding to the crisis within fifteen days of the FY 2011 budget release, some time next year. The Senate is required by the 2003 Medicare Modernization Act to review this legislation on an expedited basis. The House has exempted itself from such an expedited review under rules it adopted last January. 

--WALTON DUMAS

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