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Today, June 22, 2016, the Medicare and Social Security Trustees issued the 2016 Annual Report of the Boards of Trustees of the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund.

In short, according to the report, the Part A trust fund depletion date is 2028, down 2 years from 2030 as projected last year. Although a slight reduction in the projection of how long the trust fund will remain fully funded, as the Centers for Medicare & Medicaid Services (CMS) notes, this is still 11 years longer than projected in 2009 before the passage of the Affordable Care Act.

An Important Note on Trust Fund Solvency: Even if the Part A Trust Fund were to become insolvent, the program will still be able to pay out 87% of its benefits (and, if current projections hold, roughly 80% by 2050). While not ideal, this is far from “bankruptcy.”  Further, the date of projected insolvency is an estimate, and could easily change again – as it has many times before. The Trust Fund largely reflects the health of the economy. At various times since 1970, the trustees have projected Trust Fund insolvency in as few as 4 years or as many as 28 years.  While the Part A Trust Fund is mostly funded by payroll taxes, Medicare Part B is funded by a certain percent of general revenues and premiums, and therefore cannot “go broke.”

Other highlights of the Trustees Report include:

Medicare Expenses

According to a CMS press release, per-enrollee Medicare spending growth has been low, and over the next decade, per-enrollee Medicare spending growth is expected to continue to be lower than the growth in overall per capita national health expenditures.  Spending growth will likely increase faster in the next decade due, in large part, to the increase in the number of Medicare beneficiaries.

One area of spending growth noted by the trustees is the costs of prescription drugs paid by Medicare, which “continue to exceed growth in other Medicare costs and overall health expenditures” – particularly for specialty drugs.

Premiums

Because of a projected small Social Security cost of living adjustment (COLA), which will not match the increase in Part B premiums, it is likely that Medicare’s “hold harmless” provision will be triggered again in 2017 (similar to 2016).  This means a small increase in Part B premiums for the roughly 70% of Medicare beneficiaries who will be held harmless and potentially significant increases in the premium for those who are not held harmless.

As noted in the Report, “A hold-harmless provision restricts Part B premium increases for most beneficiaries in 2016; however, the Bipartisan Budget Act of 2015 requires a transfer of funds from the general fund to cover the premium income that is lost in 2016 as a result of the provision. In 2017 there may be a substantial increase in the Part B premium rate for some beneficiaries.” [p.8]

For example, according to Table V.E.2 (p. 205), the standard Part B premium is projected to rise roughly 22% to $149 per month (from $121.80 in 2016).  If these projections hold, absent Congressional intervention similar to the Bipartisan Budget Act of 2015, it appears that this would be the higher premium amount paid by those who are not held harmless. 

June 22, 2016 – D. Lipschutz

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