Medicare Will Be Viable to 2029, Backing Obama Claim

Medicare will gain an extra 12 years of fiscal life as a result of the health law signed in March by President Barack Obama, a government report said, supporting the administration’s claims about the value of the overhaul.

Medicare, the U.S. government’s health plan for the elderly and disabled, will now run short of money in 2029 instead of 2017, according to the report issued today by the program’s trustees, including Treasury Secretary Timothy Geithner and Health and Human Services Secretary Kathleen Sebelius.

In 2009, Medicare covered 46.3 million beneficiaries and paid $502 billion in benefits, the report said. The health law cuts payments to medical providers under the Medicare program, reduces future spending and puts in place programs such as the “Center for Medicare and Medicaid Innovation,” designed to develop future cost efficiencies.

The legislation “makes a very substantial improvement in our long-term fiscal position” Geithner said at a Washington news conference, one that is “much larger than anything we have considered, much less embraced.”

Medicare Chief Actuary Richard Foster, who ran the numbers used in writing the trustees’ report, said in an attachment that there is a “strong likelihood” that some of the overhaul’s changes won’t implemented, so the forecasts don’t “represent a reasonable expectation for actual program operations.”

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U.S. Treasury Secretary Timothy Geithner speaks during a press conference at the Treasury Department on Thursday Aug. 5, 2010 in Washington, D.C. Close

U.S. Treasury Secretary Timothy Geithner speaks during a press conference at the... Read More

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Photographer: David Rogowski/Bloomberg

U.S. Treasury Secretary Timothy Geithner speaks during a press conference at the Treasury Department on Thursday Aug. 5, 2010 in Washington, D.C.

Insurers Gain

The Standard & Poor’s Managed Health Care Index of six insurers climbed 1.8 percent to 333.50 after the report’s release.

UnitedHealth Group Inc., the insurer administering the most Medicare plans, gained 51 cents, or 1.6 percent, to $33.42 at 4 p.m. in New York Stock Exchange composite trading. Humana Inc., the second-biggest Medicare insurer, increased 25 cents to $49.97. UnitedHealth, the biggest U.S. health plan by sales, is based in Minnetonka, Minnesota, and Humana is based in Louisville, Kentucky.

Today’s report suggests the business climate will be shifting in favor of insurers looking to cut medical costs and away from doctors and hospitals fighting for higher rates, said Brenda Gleason, president of M2 Health Care Consulting in Washington. The Medicare trustees, in stronger language than in the past, said providers must “adjust their expectations,” she said in a telephone interview.

Aetna, Cigna

That matches what health plans such as Hartford, Connecticut-based Aetna Inc. and Cigna Corp. of Philadelphia have said in recent earnings reports, Gleason said.

“You can see that there’s going to be support for ratcheting down provider rates,” said Gleason, who advises large employers and private-equity firms on the implications of government policy. “If Medicare goes down, then private insurers can feel free to push their rates down as well.”

The report was prepared by the Office of the Actuary, a unit of the Department of Health and Human Services. Last year’s actuarial findings showed that the trust fund had eight years remaining and wouldn’t be able to pay full benefits in 2017. Social Security, the retirement income program for people 65 and older, will run out of funds to pay full benefits in 2037, the same as in last year’s trustees’ report.

“Nearly all” of the 12-year increase in Medicare’s longevity is attributed to the overhaul, according to a report summary by the administration.

Medicare Prediction

On Aug. 2, a report issued by Medicare predicted the overhaul may more than double the time before the program ran out of funds. Under the health law, $145 billion is scheduled to be saved over a decade as a result of payment cuts to Medicare Advantage while $205 billion in savings will come from lower payments to Medicare providers, according to the report.

Medicare spending has grown steadily since its creation in 1965, and is the third-largest federal outlay behind social security and defense. It is funded through a payroll tax, general tax revenue and beneficiary premiums

Medicare’s finances still face long-term difficulties because of an aging population that will live longer and because of the increasing cost of medical care.

“The significant longer-term financial imbalances of the programs still need to be addressed,” said the trustees in the report summary. “The sooner action is taken to address the long-run financial imbalances, the more reform options will be available, and the more time there will be to phase in changes so that those affected will have adequate time to prepare.”

Funding Options

Options for funding Medicare that have been discussed in past years include cutting other programs or increasing taxes. Also, the program could raise the age at which Social Security and Medicare start providing benefits to most people from 65, or decrease the amount of those benefits.

“We’re going to have to have a debate, and we can always hope it will be civil,” Geithner said.

Because of the depth of the Medicare cuts, Foster, the Medicare actuary, wrote, “Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result.”

“For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range” or long term, he said. Foster made similar statements in April, as part of an analysis of the new law.

Parallel Report

Foster’s office issued a parallel report today, separate from the one written by the trustees. It said the projections in the trustees’ report “do not represent the ‘best estimate’ of actual future Medicare expenditures,” the actuaries wrote in their separate report.

Under the “alternative scenario” from Foster, the trust fund wouldn’t be able to pay full benefits a year earlier, in 2028. Long-term effects would be more significant, the actuaries said. In 75 years, the deficit between Medicare’s spending and revenue would be almost triple the trustees’ projection, Foster’s office said in its report.

Democrats in Congress said the trustee report validates their claims that the health-care law improved Medicare’s fiscal future. “These reports show the tangible, positive results of the improvements made to Medicare by health reform,” House Ways and Means Committee Chairman Sander Levin, the Michigan Democrat, said in a statement.

Republicans Disagree

Republicans disagreed with the administration and congressional Democrats’ positive view of Medicare’s financial health. Senator Orrin Hatch, the Utah Republican, said the analysis “uses the same flawed logic, double counting and budget gimmicks to show that Medicare’s on better footing because of the health law.”

The bulk of savings come from cuts to provider rates and payments to private Medicare plans, as opposed to changes to the underlying incentives in the delivery system that experts such as former White House Office of Management and Budget Director Peter Orszag touted as necessary to “bend the curve” of health care spending growth.

“Our read is that it does look like it’s improved the short-term financial condition, at least it’s put off the exhausting of the trust fund a number of years,” said Tom Wildsmith, a board member of the Washington-based American Academy of Actuaries. “But we still have an underlying financial imbalance.”

Obama has appointed a bipartisan commission to study the country’s fiscal challenges and how to solve them. The panel’s report is due Dec. 1.

“This administration looks forward to hearing the fiscal commission’s recommendations so we can address the imbalances in these programs,” Labor Secretary Hilda Solis, another of the program’s trustees, said at the press conference.

The report, which each year estimates how many years Medicare can pay benefits before running out of money, was delayed from the usual spring release so government actuaries could assess the impact of the health law.

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net.

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