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Medicare Finances Worsen but Social Security Projections Stable

Changes by Congress to tax law, entitlements affect projections

Treasury Secretary Steven Mnuchin was among the senior administration officials outlining the annual report on the health of the Medicare and Social Security systems. (Tom Williams/CQ Roll Call file photo)
Treasury Secretary Steven Mnuchin was among the senior administration officials outlining the annual report on the health of the Medicare and Social Security systems. (Tom Williams/CQ Roll Call file photo)

The Social Security system is in almost the same shape as last year for its retirement benefits and in a better position for its disability benefits, the program’s trustees reported Tuesday. But a separate report for Medicare paints a somewhat bleaker outlook for the giant health program for seniors and people with disabilities, estimating that its hospital trust fund will dry up in 2026 — three years earlier than last year’s projections.

Medicare’s board of trustees attributed the change, in part, to lower payroll taxes and higher-than-expected health care spending in 2017.

Last year, the board’s findings showed Medicare’s finances to be in slightly better shape than previously projected, with the hospital insurance trust fund remaining solvent until 2029.

The latest Medicare trustees’ report also estimates that the fund will have enough money to cover 91 percent of hospital-related expenses through 2026, declining to 78 percent in 2039 before gradually rising to 85 percent in 2092.

Meanwhile, the trustees project that both Medicare Part B outpatient care and the Part D prescription drug program will remain adequately financed into the “indefinite future” with money from general revenues and beneficiary premiums.

“Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation,” the board wrote.

The projections are also influenced by higher payments to private Medicare Advantage health plans and new laws, such as the tax overhaul cleared last year. The tax package effectively eliminated the mandate that most Americans have health insurance or face a financial penalty under the the 2010 health care law.

The end of that individual mandate is expected to lead to higher rates of uninsured patients and uncompensated care costs for hospitals, which Medicare helps fund, government officials said during a press briefing at the Treasury Department Tuesday afternoon.

The tax cuts are also projected to lead to a small revenue reduction in the short term for the hospital trust fund, though revenue is expected to grow again in the long run, officials said.

Officials also said that the repeal of a controversial panel created by the health law, known as the Independent Payment Advisory Board, affected this year’s trust fund estimates.

The annual funding update marks the first such report since Congress did away with that panel, which was designed to cut Medicare costs if spending grew too fast. Lawmakers eliminated that panel as part of the bipartisan budget deal struck in February.

Republicans long derided the board as a “death panel,” while some Democrats also raised concerns over it. However, the board never actually existed since neither the Obama nor Trump administrations nominated people to serve on it.

Repealing the board ends that potential check on Medicare spending, said Juliette Cubanski, a Medicare expert with the nonprofit Kaiser Family Foundation.

“We are expecting to see higher Medicare spending as a result because we aren’t going to see these automatic reductions come into play,” she said.

Cubanski added that it appears spending for Medicare Part B and Part D is projected to continue increasing faster than in previous years, which could raise premiums for beneficiaries down the road.

Medicare covered more than 58 million Americans in 2017. The hospital trust fund helps pay for hospital stays and some home health services, as well as nursing home and hospice care. The other fund, which consists of Part B and Part D, helps cover things like doctor’s office visits, home health care and subsidized access to prescription drug coverage.

The program’s trustees board consists of the heads of the Treasury, Labor, Health and Human Services and Social Security departments, as well as two public member positions that remain vacant.

Centers for Medicare and Medicaid Services Administrator Seema Verma on Tuesday urged Congress to examine the Medicare proposals in President Donald Trump’s fiscal 2019 budget, saying in a statement that they would bolster the integrity of the program.

“Under the President’s leadership, CMS will continue to provide access to high-quality services for seniors and use every regulatory pathway to strengthen the Medicare program,” Verma said in a statement.

The National Committee to Preserve Social Security and Medicare advocacy group responded to the report by urging the Trump administration to allow the program to negotiate prices with drugmakers.

“President Trump’s recently unveiled prescription drug pricing proposals were a missed opportunity to bring Big Pharma to the negotiating table with the Medicare program,” the committee’s CEO, Max Richtman, said in a statement. “Among all the steps we could take to maintain the program’s financial health, this is one of the most crucial.”

The Center for Medicare Advocacy also criticized Congress’ recent tax overhaul and inflated payments to Medicare Advantage plans as part of the problem.

“This report should not be used as an excuse to cut Medicare by passing along more costs on to beneficiaries,” the advocacy group said in a statement. “Instead, it serves as evidence that sound policy solutions should be pursued, such as real efforts to rein in both prescription drug prices and Medicare Advantage overpayments.”

Social Security

The Social Security system will be able to pay full benefits into 2034 in the Old Age and Survivors Insurance program and into 2032 in the Disability Insurance Program, according to the Social Security report.

That represents a change from last year, with the exhaustion date for disability insurance extended four years later than projected last year and the depletion for the retirement program estimated to occur one year earlier than previously projected.

The trustees said this is the third year in a row that the near-term disability cost outlook significantly improved.

The report said the improved outlook for the disability program is due to lower projected disability incidence rates in the near term and lower average benefit levels for disabled workers awarded in 2017 and afterward.

Social Security’s total cost is projected, for the first time since 1982, to exceed its total income including both tax receipts and interest in 2018 and to remain higher throughout the projection period, the report said.

“The programs remain secure,” Treasury Secretary Steven Mnuchin said in a statement. Mnuchin added that “long-term issues persist.” He said “lackluster economic growth in previous years, coupled with an aging population, has contributed to the projected shortages for both Social Security and Medicare.”

In another projection, the trustees estimate the hypothetical combined Social Security trust funds will be depleted in 2034 — no change from last year. That estimate is used as a benchmark, even though under the law the separate trust funds would be exhausted independently of each other.

In another calculation, the trustees estimated the 75-year actuarial deficit for the combined trust funds at 2.84 percent of taxable payroll, up slightly from the 2.83 percent of taxable payroll estimated in last year’s report. That reflects a .06 percentage point worsening due to extending the projection period and valuation date by one year, and a .04 percentage point improvement due to new data and improved projection methods, the report said.

The trustees estimate a 2.4 percent cost of living increase for beneficiaries in December, up from 2 percent last year.

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