An analysis Monday by the Kaiser Family Foundation of the 2014 Social Security and Medicare Trustees’ report shows Medicare spending growth has slowed in recent years and is expected to grow at a slower rate in the future than in the past, a reduction not envisioned just a few years ago.
Adding years of solvency to Part A, the Hospital Insurance Trust Fund seniors age 65 qualify for, wasn’t the only good news in today’s report. In what KFF called a “break from the historical pattern, net Medicare spending is projected to be a roughly constant share of the federal budget and the nation’s economy in the coming decade.”
Medicare Trustees provided an estimate Monday of the year when solvency of the trust fund could become suspect, as it has every year since its creation in 1965. The good news is the reduced growth in Medicare spending, attributed in large part to the Affordable Care Act, which became the law of the land in 2010 and upheld as constitutional by the U.S. Supreme Court two years later.
Because the ACA, also known by its political moniker “Obamacare,” is working as designed to bend the cost curve in America’s health care system over time, the Trustees announced an extension in the trust fund’s solvency. Based on the view of the future from today’s perspective, Trustees project that Part A, the hospitalization trust fund, will operate at full capacity until 2030, four years later than was projected just last year and six years later than projected the 2012.
“This year’s projections come as no surprise to anyone who understands how Social Security and Medicare work,” said National Committee to Protect Social Security and Medicare President/CEO Max Richtman. “This year’s Trustees reports prove, once again, how successful and stable Social Security and Medicare continue to be for the American people and the federal government.” Richtman notes that from a historical perspective, the solvency date for the Social Security Trust Fund has fluctuated from a depletion date as distant as 2048 in the 1988 report to as soon as 2029 predicted in 1994 and 1997 over time. “We should build on that success and continue reducing the high cost of health care system-wide, not just in Medicare,” Richtman said in prepared remarks, commenting on the Trustees duty each year to assess the future.
“Medicare spending per enrollee between 1969 and 2012 grew at an average annual rate of 7.7 percent, a rate 20 percent slower than the average annual growth rate in private health insurance spending per enrollee of 9.2 percent. According to the Kaiser Family Health Foundation, which analyzed today’s Trustee report, this comparison includes benefits commonly covered by Medicare and private health insurance over this period, including hospital services, physician and clinical services, and other professional services, and durable medical products.
“The solvency of the Medicare Hospital Insurance trust fund, out of which Part A benefits are paid, is a common way of measuring Medicare’s financial status. Solvency is measured by the level of assets in the Part A trust fund. In years when annual income to the trust fund exceeds benefits spending, the asset level increases, and when annual spending exceeds income, the asset level decreases. When spending exceeds income and the assets are fully depleted, Medicare will not have sufficient funds to pay all Part A benefits,” KFF said.
Trustees project Social Security will be able to pay full benefits until the year 2033. After that, Social Security will still have sufficient revenue to pay 77% of benefits if no changes are made to the program.
Social Security remains well-funded. In 2014, as the economy continues to improve, Social Security’s total income is projected to exceed its expenses. In fact, the Trustees estimate that total annual income will exceed program obligations until 2019.
Trustees project a Cost of Living Adjustment increase of about 1.5% in 2015.
The Trustees report there is now nearly $2.76 trillion in the Social Security Trust Fund, which is $32 billion more than last year and that it will continue to grow by payroll contributions and interest on the Trust Fund’s assets.
As Republicans in Congress prepare to file a lawsuit against President Obama for either exceeding his authority under the constitution or not using it enough, the dysfunctional news that debts and deficits have dropped at rapid rates since the start of his administration in 2009 creates a kind of political dissonance for politicos on the right and those who follow them. As NCPSSM put it, “With so little bad news to report in this 2014 Trustees report, critics have now shifted their attention to Social Security Disability Insurance, which faces a more immediate challenge and requires Congress’ action for a reallocation.”
KFF ends its analysis on a cautionary note, however, as it speculates on recent trends and what insight about future spending levels can shine through. Policy discussions about reducing the federal budget debt, given the health care financing challenges posed by the aging of the population, will be ripe for political wrangling, as has become the norm since the Obama Administration has occupied the White House. Changes to Medicare—including restructuring Medicare benefits and cost sharing; eliminating “first-dollar” Medigap coverage; increasing Medicare premiums for all beneficiaries or those with relatively high incomes; raising the Medicare eligibility age; shifting Medicare from a defined benefit structure to a “premium support” system; and accelerating the ACA’s delivery system reforms—won’t come easy, if the last six years is any guide going forward.
“How the recent slowdown in Medicare spending growth will affect the prospects for these proposals is unclear, but it could provide an opportunity for thoughtful consideration of these and other ways to bolster the program for an aging population,” KFF concludes.
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