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Medicare Trust Fund Boosted By Health Care Reform: Report


First Posted: 05/13/11 05:00 PM ET Updated: 07/13/11 06:12 AM ET

WASHINGTON -- The Medicare trust fund will last eight years longer than it would have without the passage of last year's health care law, the program’s trustees announced Friday in a report.

The nonpartisan lead actuary for Medicare, Rick Foster, estimated that without the health care overhaul, the program’s trust fund would have run dry by 2016. With the law in effect, Foster projected, the trust fund will last through 2024.

The reform law extended Medicare's solvency in large part by targeting a program called Medicare Advantage, which allowed private insurers to provide Medicare-funded policies that ended up costing significantly more than the government insurance program itself. The cuts to Medicare Advantage were used during the 2010 election to hammer Democrats for taking money from Medicare to pay for other elements of health care reform.

But despite the boost from the health care law, the trust fund's overall stability has suffered since last year. As USA Today and other news outlets noted, the 2010 report projected the surplus would last until 2029, five years later than Friday's forecast.

“The five year change from the 2010 trustee report was due to a slowdown in the national economy, which resulted in a decline in tax revenues and higher real projected expenditures,” the Centers for Medicare & Medicaid Services (CMS) said in a statement. “This is not the first time that the HI Trust Fund expiration date has been affected by a decline in anticipated revenues. In 2004, for example, the Trust Fund exhaustion date moved up by 7 years, in large part because payroll tax revenues in 2003 were lower than had been anticipated.”

Even with health care reform implemented, however, the fund’s annual expenditures are expected to exceed revenue in 2012 and each following year, as health care costs continue to outpace inflation. U.S. health care costs per capita also greatly exceed those for other industrialized countries, despite poorer health outcomes.

Rising health care costs are driven not only by an aging population, but by a lack of competition among insurance companies and a pharmaceutical copyright system that prevents cheaper drugs from entering the market. Health care reform strove to address the former issue by creating state-based exchanges where plans will compete, but only entrenched the latter problem.

During the health care reform debate, Democrats pushed for a public health insurance option that would reduce premiums by requiring insurers to compete with a public plan. The Congressional Budget Office has estimated it could save nearly $60 billion over 10 years.

Health and Human Services Secretary Kathleen Sebelius highlighted the boost reform gave to Medicare. “Over the next 75 years, Medicare’s Hospital Insurance costs are projected to be about 25 percent lower due to the new law,” she said in a statement. "And without the historic deficit reduction in the Affordable Care Act, Medicare would have gone bankrupt in 2016 -- only five years from now."

Still, 2024 isn’t much further down the road.

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