The 2017 Medicare Trustees Report shows that Medicare solvency remains greatly improved since the enactment of the Affordable Care Act (ACA), with the Hospital Insurance Trust Fund paying full benefits until 2029. Implementation of payment and delivery system reforms that emphasize coordinated care especially for people with multiple chronic conditions, incentives to reduce the rate of hospital readmissions, and a reduction in the rate of increase in payments to hospitals and private Medicare plans are improving Medicare’s financing. At the same time, under the ACA, millions of Medicare beneficiaries are receiving preventive screenings and wellness visits without copayments as well as additional assistance with their prescription drug costs.
Each year the Medicare Trustees release a report on the current status and projected condition of Medicare’s two trust funds over the next 75 years – the Hospital Insurance (HI) Trust Fund that covers Part A which finances inpatient hospital and related care, and the Supplementary Medical Insurance (SMI) Trust Fund that finances both Part B physician and outpatient care and Part D that pays for prescription drugs.
Medicare Part A (HI Trust Fund) is primarily financed by payroll taxes on earnings that are paid by employees, employers and the self-employed. Employees and employers each pay 1.45 percent in taxes on all earnings. The self-employed contribute 2.9 percent, the equivalent of the combined employer and employee tax rates.
Medicare Parts B and D (SMI Trust Fund) are financed by payments from federal general fund revenues (about 75 percent) and by monthly premiums charged to beneficiaries (about 25 percent). Because Medicare Part B and Part D are automatically financed through general revenues and beneficiary premiums to meet estimated program costs each year, the SMI Trust Fund is adequately financed in both the short and long term.
Financial Outlook of the Medicare Program
The Medicare Part A (HI) Trust Fund will be solvent until 2029, which is one year later than was projected last year. In 2029, payroll taxes alone are estimated to be sufficient to cover 88 percent of HI costs.
Solvency has improved by 12 years from the date that was projected before enactment of the Affordable Care Act. This legislation improved Medicare's financing by reducing the rate of increase in provider payments, phasing out overpayments to Medicare Advantage plans and increasing Medicare payroll taxes for high-income individuals and couples.
Medicare's actuarial shortfall decreased from last year. The HI Trust Fund now has a projected 75-year actuarial deficit equal to 0.64 percent of payroll compared with last year's estimate of 0.73 percent. This is much less than the 3.88 percent of payroll that the Trustees estimated before the Affordable Care Act became law. In other words, the HI Trust Fund's fiscal imbalance could be solved by increasing payroll taxes by 0.64 percent, by reducing the program's spending by a corresponding amount, or by some combination of the two.
Medicare spending remained stable as a share of the economy. The Trustees project that Medicare's costs (for both the HI and SMI Trust Funds) will grow from 3.6 percent of gross domestic product (GDP) in 2017 to 5.6 percent of GDP in 2041. This increase occurs because the number of people receiving benefits will grow as the baby boom generation retires. Thereafter, Medicare's costs are projected to grow more slowly, reaching 5.9 percent of GDP in 2091. Again, these increases are lower than what was projected before enactment of health care reform when Medicare's costs were projected to grow from 3.5 percent of GDP in 2009 to 11.3 percent of GDP in 2083.
Costs for Part B (SMI Trust Fund) are growing due to the aging population and rising health care costs. Part B spending, which was 2.1 percent of GDP in 2016, is projected to increase to 3.4 percent in 2037 and to 3.7 percent in 2091. These increases are lower than those projected before enactment of the Affordable Care Act – i.e. that costs would rise to 4.5 percent of GDP in 75 years.
Medicare Part B Premium and Deductible
The Part B standard monthly premium for 2018 is projected to be $134, which is the same as the 2017 amount. However, many beneficiaries are currently paying a lower premium due to the hold harmless provision in the law that protected their Social Security benefits from being reduced in the past few years when there was no COLA, or the COLA was not large enough to cover the increase in the Part B premium.
Higher-income beneficiaries (incomes exceeding $85,000 for an individual and $170,000 for a couple) pay larger income-related monthly premiums, which are projected to range from $187.50 to $428.60 in 2018, the same as in 2017. However, because the Medicare and CHIP Reauthorization Act (MACRA) lowered certain income thresholds used for determining the income-related monthly adjustment amounts to be paid by beneficiaries in 2018, a greater number of beneficiaries will be paying higher amounts.
The annual deductible is projected to remain at $183 for all beneficiaries in 2018.
Medicare Part D
Part D expenditures as a percent of GDP are expected to increase from 0.5 percent in 2016 to 1.17 percent in 2090. The average annual increase in expenditures for Part D is projected to rise to 6.4 percent over the next 5 years — compared to 5.2 percent growth for the overall U.S. economy.
The average Part D monthly premium is $35.63 in 2017, and is estimated to be $37.54 in 2018.
In 2017, Part D enrollees with incomes exceeding the threshold of $85,000 for an individual and $170,000 for a couple are paying an income-related monthly adjustment amount in addition to their normal plan premium, ranging from $13.30 to $76.20 per month. This is estimated to increase to $14.00 to $80.60 in 2018. The Part D annual deductible, which is $400 in 2017, will be $405 in 2018.
Parts B and D Out-of-Pocket Costs
The Medicare Trustees project that by 2091, Parts B and D out-of-pocket costs - premiums and cost-sharing amounts - will consume 33 percent of the average Social Security check compared to 25 percent in 2017.
NATIONAL COMMITTEE POSITION
The long-term outlook for Medicare is improving. Despite that, Medicare faces a long-term financial challenge due to the large increase in the number of beneficiaries as baby boomers reach age 65, skyrocketing prescription drug prices and overall health care inflation that continues to grow at too high a rate.
It is critical that we continue to implement reforms included in the Affordable Care Act that are containing costs and promoting access to quality health care. This includes supporting coordinated care through Accountable Care Organizations, medical homes, bundled payments, and reducing hospital readmissions and hospital-acquired infections, as well as efforts to further reduce spending due to waste, fraud and abuse. These provisions, along with requirements in the law to slow the rate of increase in provider payments and reduce overpayments to Medicare Advantage plans, are necessary to prevent Medicare costs from becoming unsustainable for both beneficiaries and the federal government.
The National Committee supports strengthening Medicare’s financing without shifting costs to beneficiaries by requiring pharmaceutical manufacturers to pay Part D drug rebates to the federal government and allowing Medicare to negotiate prescription drug prices. The Congressional Budget Office (CBO) has estimated savings of $121 billion over 10 years if drug manufacturers were required to provide rebates for drugs prescribed for low-income Medicare beneficiaries, as they were required to do before passage of the Medicare Modernization Act.
Government Relations and Policy, July 2017