Tag Archives: Medicare trust fund

What You Need to Know about Today’s Medicare Trustees Report

Earlier this afternoon, the Medicare trustees released their annual report on the state of the program’s finances. Here’s a quick take about what you need to know in the report:

Insolvency Date:  The insolvency date for the Medicare Hospital Insurance Trust Fund is 2029, one year later than last year’s report. However, remember that, if not for the double-counting in Obamacare (about which see more below), the Trust Fund would ALREADY be insolvent, as in 2009 — the last trustees report prior to Obamacare’s enactment — the trustees projected insolvency for 2017 (i.e., this year).

IPAB NOT Triggered:  Despite prior predictions, this year’s trustees report did NOT trigger a reporting requirement related to the Independent Payment Advisory Board (IPAB). In other words, Medicare spending over the relevant five year period (2015 through 2019) is not projected to exceed the per capita caps established for Medicare in Obamacare itself. Which makes one wonder — if per capita caps for Medicare haven’t yet bit, why are liberals objecting so loudly to per capita caps for Medicaid…?

A Brief Break from Massive Deficits:  For the first time in nearly a decade, the Medicare Part A Trust Fund did NOT run a deficit. However, the small $5.4 billion surplus did not even begin to overcome the $132.2 billion in deficits run by the Medicare program from 2008 through 2015.

Funding Warning:  For the first time since 2013, the trustees issued a funding warning showing that the Medicare program is taking a disproportionate share of its funding from general revenues, thus crowding out programs like defense and education. If a second warning is issued next year, the President will be required to submit legislation to Congress remedying the problem.

Unrealistic Assumptions:  As it has every year since the passage of Obamacare, the trustees issued an alternative scenario, because “absent an unprecedented change in health care delivery systems,” the payment reductions included in Obamacare mean that “access to, and delivery of, Medicare benefits would deteriorate over time for beneficiaries.”

Double Counting:  The actuary also previously confirmed that the Medicare reductions in Obamacare “cannot be simultaneously used to finance other federal outlays and to extend the [Medicare] trust fund” solvency date – rendering dubious any potential claims that Obamacare will extend Medicare’s solvency.  As Nancy Pelosi previously admitted, Democrats “took a half a trillion dollars out of Medicare in [Obamacare], the health care bill” – and you can’t improve Medicare’s solvency by taking money out of the program.

Democrats’ Hypocrisy on the Trump Budget

As expected, the Left had a harsh reaction to President Trump’s first budget on its release Tuesday. Bernie Sanders called the proposed Medicaid reductions “just cruel,” the head of one liberal think-tank dubbed the budget as a whole “radical,” and on and on.

But if liberals object to these “draconian cuts,” there’s one potential solution: Look in the mirror.

Liberals’ supposed outrage over reductions to entitlements largely serving poor people would look slightly less disingenuous if they hadn’t made the same hyperbolic comments about reducing entitlement spending on middle-class and wealthy retirees. If the Left believes the budget reduces spending from anti-poverty programs too deeply, that in part stems from the president’s (flawed) conclusion that Social Security and Medicare reforms are too politically toxic to propose.

And exactly who might be to blame for creating that toxic environment?

Democrats Are Using The ‘Mediscare’ Playbook

Democrats have spent the past several political cycles running election campaigns straight out of the “Mediscare” playbook. In case anyone has forgotten, political ads have portrayed Republicans as literally throwing granny off a cliff.

This rhetoric about Republican attempts to “privatize” Medicare came despite several inconvenient truths:

  1. The “voucher” system Democrats attack for Medicare is based upon the same bidding system included in Obamacare;
  2. The Congressional Budget Office concluded one version of premium support would, by utilizing the forces of competition, actually save money for both seniors and the federal government; and
  3. Democrats—in Nancy Pelosi’s own words—“took half a trillion dollars out of Medicare” to pay for Obamacare.

Given the constant attacks from Democrats against entitlement reform, however, Donald Trump made the political decision during last year’s campaign to oppose any changes to Medicare or Social Security. He reiterated that decision in this week’s budget, by proposing no direct reductions either to Medicare or the Social Security retirement program. Office of Management and Budget Director Mick Mulvaney said the president told him, “I promised people on the campaign trail I would not touch their retirement and I would not touch Medicare.”

That’s an incorrect and faulty assumption, of course, as both programs rapidly spiral toward insolvency. The Medicare hospital insurance trust fund has incurred a collective $132.2 billion in deficits the past eight years. Only the double-counting created by Obamacare continues to keep the Medicare trust fund afloat. The idea that President Trump should not “touch” seniors’ retirement or health care is based on the fallacious premise that they exist beyond the coming decade; on the present trajectory, they do not, at least not in their current form.

Should Bill Gates Get Taxpayer-Funded Healthcare?

That said, the president’s reticence to “touch” Social Security and Medicare comes no doubt from Democrats’ reluctance to support any reductions in entitlement spending, even to the wealthiest Americans. When Republicans first proposed additional means testing for Medicare back in 2011, then-Rep. Henry Waxman (D-CA) opposed it, saying that “if [then-House Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.”

In other words, liberals like Henry Waxman, and others like him, wish to defend “benefits for billionaires”—the right of people like Bill Gates and Warren Buffett to receive taxpayer-funded health and retirement benefits. Admittedly, Congress passed some additional entitlement means testing as part of a Medicare bill two years ago. But the notion that taxpayers should spend any taxpayer funds on health or retirement payments to “one-percenters” would likely strike most as absurd—yet that’s exactly what current law does.

As the old saying goes, to govern is to choose. If Democrats are so violently opposed to the supposedly “cruel” savings proposals in the president’s budget, then why don’t they put alternative entitlement reforms on the table? From eliminating Medicare and Social Security payments to the highest earners, to a premium support proposal that would save seniors money, there are potential opportunities out there—if liberals can stand to tone down the “Mediscare” demagoguery. It just might yield the reforms that our country needs, to prevent future generations from drowning in a sea of debt.

This post was originally published at The Federalist.

Memo to Congress on Obamacare: Take My Coverage–Please!

Last week, Vox ran a story featuring individuals covered by Obamacare, who live in fear about what the future holds for them. They included people who opened small businesses because of Obamacare’s coverage portability, and worry that the “career freedom” provided by the law will soon disappear.

Unfortunately, but perhaps unsurprisingly, Vox didn’t ask this small business owner—who also happens to be an Obamacare enrollee—for his opinions on the matter. Like the enrollees in the Vox profile, I’m also incredibly worried about what the future holds, but for a slightly different reason: I’m worried for our nation about what will happen if Obamacare ISN’T repealed.

What Obamacare Hasn’t Done For Me

Unlike many of the individuals in the Vox story, I am a reluctant Obamacare enrollee—literally forced to buy coverage on the District of Columbia’s Exchange because Washington, D.C. abolished its private insurance market. (While I did contemplate moving to Virginia, where I could at least purchase an Obamacare-compliant plan without going through an Obamacare-mandated website, such changes aren’t easy when one owns one’s own home.)

While in generally decent health, I have some health concerns: mild hypertension (controlled by medications), mild asthma, and allergies that have worsened in the past few years. I’ve gone through two reconstructive surgeries on my ankle, which I’ve chronicled in a prior article. Under “research” previously published by the Obama Administration, my health conditions classify me as one of the 129 million people with a pre-existing condition supposedly benefiting from the law.

Yet while my health hasn’t changed much since Obamacare passed and was implemented, my health insurance policy has already been cancelled once. The replacement I was offered this year included a 20 percent premium increase, and a 25 percent increase in my deductible.

If Obamacare was repealed, or if insurers stopped offering coverage, it would be an inconvenience, no doubt. I don’t know what options would come afterwards. That would depend on actions by Congress, the District of Columbia, and the insurance community. But having already lost my coverage once, and gone through double-digit premium and deductible increases, how much worse can it really get?

Obamacare Will Raise the Deficit

Conversely, I am greatly worried about what will happen if Congress doesn’t repeal Obamacare. Our nation is nearly $20 trillion in debt—yet Obamacare would spend nearly $2 trillion more on health coverage in the next 10 years.

I know what liberals are saying: “But Obamacare will reduce the deficit!” Yes, the Congressional Budget Office did issue a score saying the law will lower the deficit. But consider all the conditions that must be met for Obamacare to lower the deficit. If:

  • Annual Medicare payment reductions that will render more than half of all hospitals unprofitable within the next 10 years keep going into effect; and
  • Provisions that will, beginning in 2019, reduce the annual increase in Exchange insurance subsidies—making coverage that much more unaffordable for families—go into effect; and
  • An unpopular “Cadillac tax” that has already been delayed once—and which the Senate voted to repeal outright on a bipartisan 90-10 vote in December 2015—actually takes effect in 2020 (which just happens to be an election year); then

The Congressional Budget Office estimates that the law will reduce the deficit by a miniscule amount. But if any of those conditions aren’t met, then the law becomes a budget-buster. And if you think all those conditions will actually come to pass, then I’ve got some land to sell you.

Obamacare’s Unspoken Opportunity Costs

Even if you believe in raising taxes to reduce the deficit, Congress has already done that. Except that money wasn’t used to lower the deficit—it’s been used to pay for Obamacare. Even some liberals accept that you can only tax the rich so much, at which point they will stop working to avoid paying additional income in taxes. Obamacare brought us much closer to that point, without doing anything to put our fiscal house in order.

Likewise, the law’s Medicare payment reductions are being used to both pay for Obamacare and extend the life of the Medicare trust fund (at least on paper, if not in reality). If it weren’t for the gimmick of this Obamacare double-counting, the Medicare trust fund would have become insolvent this year. Instead, budgetary smoke-and-mirrors have allowed Democrats to postpone the day of fiscal reckoning—making the day that much worse when it finally arrives.

We Just Can’t Afford Obamacare

Whether they’re liberal websites, Democratic leaders, or Republican politicians attempting to cover as many Americans as Obamacare in their “replacement,” no one dares utter the four words that our country will soon face on any number of fronts: “We can’t afford it.”

But the fact of the matter is, we can’t afford Obamacare. Not with trillions of dollars in debt, 10,000 Baby Boomers retiring every day, and the Medicare trust fund running over $130 billion in deficits the past eight years. Our nation will be hard-pressed to avoid all its existing budgetary and financial commitments, let alone $2 trillion in spending on yet more new entitlements.

So, to paraphrase Henny Youngman, take my health coverage—please. Repeal Obamacare,  even if it means I lose my health coverage (again). Focus both on reducing health costs and right-sizing our nation’s massive entitlements.

Failing to do so will ultimately turn all 300-plus million Americans into the “faces of Obamacare”—victims of a debt crisis sparked by politicians and constituents who want more government than the public wants to pay, and our nation can afford.

This post was originally published at The Federalist.

For Presidential Candidates, Some Inconvenient Truths on Entitlements

News coverage regarding Hillary Clinton’s proposal to allow individuals under age 65 to buy into Medicare has focused largely on describing how her plan might work, or how it fits into her Democratic primary battle with socialist Bernie Sanders — the left hand trying to imitate what the far left hand is doing. But these political stories mask a more important policy paradigm: While Sanders and Clinton both want to expand Medicare, the program is broke — and neither Sanders, nor Clinton, nor Donald Trump have admitted that inconvenient truth, or have proposed any specific solutions to fix the problem.

Astute readers may note the verb tense in the preceding sentence. It’s not that Medicare will become insolvent in ten or twenty years’ time — it’s practically insolvent now. The program’s Part A (hospital insurance) trust fund lost a whopping $128.7 billion between 2008 and 2014, according to the program’s trustees. The Congressional Budget Office projected earlier this year that the trust fund would become insolvent within the decade.

But in reality, the only thing keeping Medicare afloat at present is the double-counting budget gimmicks created by Obamacare. In the year prior to the law’s enactment, the program’s trustees estimated that the Part A trust fund would become insolvent by 2017 — just a few short months from now. But within months after Obamacare became law, the trustees pushed back their insolvency estimate twelve years, from 2017 to 2029.

The trustees’ estimates notwithstanding, Medicare hasn’t become more solvent under President Obama — far from it. Instead, the Medicare payment reductions and tax increases used to fund Obamacare are simultaneously giving the illusion of improving Medicare’s insolvency. When former Health and Human Services secretary Kathleen Sebelius was asked at a congressional hearing whether those funds were being used “to save Medicare, or#…#to fund health care reform [Obamacare],” Sebelius replied, “Both.”

The Madoff-esque accounting schemes included in Obamacare do not improve Medicare’s solvency one whit. In fact, they undermine the program, because the illusion of solvency has encouraged politicians to ignore Medicare’s financial shortfalls until it’s too late.

And ignore it they have. Sanders has proposed a “Medicare for all” plan that a liberal think tank this week estimated would cost the federal government $32 trillion over ten years. Hillary Clinton has proposed creating another new entitlement — this one a refundable tax credit of up to $5,000 per family to cover out-of-pocket medical expenses, for which many of the 175 million Americans with employer-sponsored coverage could qualify. And Donald Trump has run ads, in states including Pennsylvania, claiming he will “save Social Security and Medicare without cuts.”

But none of them have provided specifics about how they would reform our existing entitlements to prevent a fiscal collapse and preserve them for current seniors and future generations. The collective silence might stem from the fact that Medicare alone faces unfunded obligations of $27.9 trillion over the next 75 years — and that’s after the Obamacare accounting gimmicks that make Medicare’s deficits look smaller on paper. Shortfalls that large will require making tough choices; greater economic growth will make the deficits more manageable, but we can’t grow our way out of a $28 trillion shortfall.

Reaction to Speaker Paul Ryan’s comments about Trump last week has largely focused on the latter’s tone and temperament in his presidential campaign. But if Ryan has stood for anything in Washington, it is fiscal responsibility and entitlement reform. Conversely, by claiming he can “save Social Security and Medicare without cuts,” Trump is effectively signing Republicans up for a $28 trillion tax increase to “save Medicare” — and more besides for Social Security. Little wonder, then, that the Speaker expressed his reluctance to endorse Trump; at their meeting today, they could well address this topic in detail.

Four decades ago, as Britain plunged into its Winter of Discontent, Prime Minister James Callaghan returned from a South American summit and denied any sense of “mounting chaos.” The next day, the Sun’s famous headline shouted “Crisis? What Crisis?” Clinton, Trump, and Sanders should take note. For while the remaining candidates for president seem more interested in creating new entitlements than in making existing ones sustainable, ultimately voters will not look kindly on those who fiddled while our fiscal future burned.

This post was originally published at National Review.

Our Entitlement Problems in One CBO Chart

The Congressional Budget Office released its annual update last week regarding the long-term budget outlook. In that document, one chart in particular demonstrated the financial difficulties caused by an entitlement system that has promised Americans more in benefits than it can deliver.

Figure 2-5, on Page 47 of the CBO report, analyzes the average lifetime Medicare benefits and taxes for cohorts of the population based on their decades of birth. Individuals born in the 1940s will receive, on average, Medicare benefits equal to about 7% of their lifetime earnings. Those born in the 1960s will receive lifetime Medicare benefits equal to about 11% of their average lifetime earnings, and those born in the 1950s get benefits equal to about 9% of their earnings. In all three cases, the lifetime benefits received from Medicare will vastly exceed the lifetime taxes paid in. Most cohorts, CBO said, will pay about 2% of taxes relative to their lifetime earnings.

BN-JB263_CBOent_G_20150623140817

These findings echo reports by Eugene Steuerle and colleagues at the Urban Institute analyzing Social Security and Medicare benefits over a lifetime. Their most recent series of estimates, released in November 2013, found that a two-earner couple in which both make average wages and turn 65 in 2015 will receive more than three times as much in lifetime Medicare benefits ($427,000) as they paid over their career in Medicare taxes ($141,000).

It’s noteworthy that the dedicated Medicare payroll tax is not the program’s only source of financing. While Medicare Part A (hospital insurance) is largely funded through the direct payroll tax, general government revenues fund Medicare Part B coverage of physician services and Part D coverage of prescription drugs. In other words, most individuals fund Medicare through revenue sources beyond their payroll taxes—namely the income tax— even if quantifying the size of that contribution proves more difficult.

Still, the CBO chart illustrates two major forces squeezing Medicare: Rising health costs and longer life spans are increasing the benefits paid, and average promised benefits do not remotely equate to average contributions made—undermining the principle of a social insurance model. With about 10,000 baby boomers on track to retire every day for a generation, these two trends will define our fiscal future. Policy makers would do well to address them sooner rather than later.

This post was originally published at the Wall Street Journal’s Think Tank blog.

At What Price Medicare “Reform?”

The Congressional Budget Office has released its score of the Medicare “doc fix” legislation scheduled for consideration Thursday in the House. Among other things, the score provides some sense of the difficulty in enacting reforms to improve Medicare’s solvency.

CBO projected that the bipartisan legislation to repair Medicare’s physician payment structure would add $141 billion to the deficit. As I wrote in an earlier post, Congress paid for temporary patches in the past in part by cutting spending and in part by planning on bigger payment reductions in future years. While the legislation’s prospective increases in payment levels would be paid for, the future payment reductions already on the books would not be covered, thus raising the deficit. That unpaid-for increase in Medicare spending would also raise the basic Medicare Part B monthly premium by $10 monthly in 2025, CBO concluded.

The bill would make two structural changes to Medicare. CBO found significant savings—more than $34 billion—from reduced subsidies for higher-income earners. But the legislation’s reforms to Medigap supplemental insurance produced comparatively paltry savings: $400 million over a decade. The smaller savings is a result of legislators delaying the Medigap changes until 2020 and watering down the proposed cost-sharing required of Medigap enrollees.

CBO analyzed the bill’s costs and fiscal impact in its second decade, but the budget scorekeepers did not say the bill would reduce the deficit in the budgetary “out-years.” Compared with current law, the bill would increase the deficit, the agency said. And when compared to “freezing Medicare’s payment rates for physicians’ services,” CBO said, “the legislation could represent net savings or net costs in the second decade after enactment, but the center of the distribution of possible outcomes is small net savings.” In other words, even if one considers the scheduled reductions in future payments budgetary gimmicks that will never happen–and thus that they should be disregarded–the bill might not reduce the deficit, and if it did the budgetary savings would be very small.

Medicare needs more than very small savings to remain viable for the long term. The program’s Part A trust fund has run deficits of more than $120 billion over the past six years. And Medicare’s problems will only increase: Urban Institute projections indicate that a married couple earning average wages that retires this year will receive more than three times as much in benefits—$427,000—over their lifetime as they have paid in Medicare taxes. If the price of reforming Medicare is raising the deficit by $141 billion, how much more “reform” can Medicare withstand?

This post was originally published at the Wall Street Journal’s Think Tank blog.

Little Reason to Celebrate about Medicare

Lost amid discussion of the Medicare trustees report and the additional four years until the program becomes insolvent is the fact that for the sixth consecutive year, Medicare’s hospital insurance trust fund paid out more in benefits than it generated in revenue.

Table III.B4 on Page 56 of the trustees report tells the tale. In 2013 Medicare’s hospital insurance (Part A) trust fund took in $251.1 billion in revenue while spending $266.2 billion. On top of this $15 billion loss, the losses from 2008 through 2012 were more than $105 billion. The 2014 loss is estimated to be $13.6 billion.

In total, Medicare Part A is projected to pay out $134.2 billion more than it took in from 2008 through 2014. And the trustees forecast that the losses will not be recouped: Trust fund balances will never recover to their pre-2008 levels largely because of long-predicted demographic changes.

Those who cite the projected 2030 insolvency date to argue that the program does not immediately need significant reforms ignore the fact that the same trust fund has run deficits for six straight years–is expected to for a seventh. Policymakers focused on a delayed insolvency date imply a strategy of managed decline for Medicare. The American people deserve real, lasting solutions.

This post was originally published at the Wall Street Journal’s Think Tank blog.

The Case for Medicare Reform in One Chart

Last week’s release of the annual long-term budget outlook by the Congressional Budget Office (CBO) illustrates the need to control federal spending, and spending on health entitlements in particular. One chart from the report explains why the Medicare Part A trust fund could “be exhausted just beyond the coming decade,” according to CBO. Figure 2-4 demonstrates in visual form that the level of Medicare benefits being paid out vastly exceeds the taxes being paid into the system.

CBO_Medicare2-4

As the text accompanying the graph states:

Over their lifetime, beneficiaries born in the 1940s would, on average, receive about $160,000 in benefits (net of premiums paid) and pay about $45,000 in payroll taxes (both figures are expressed in 2013 dollars). Those born in the 1950s would receive, on average, about $205,000 in benefits and pay about $60,000 in payroll taxes, CBO estimates. And those born in the 1960s would receive, on average, about $270,000 in benefits and pay about $65,000 in payroll taxes.

To be sure, the CBO analysis comes with a major caveat. Medicare is funded directly—by the payroll tax—and indirectly—by general federal revenues that come from a variety of sources, most notably the income tax. The analysis above examines only the payroll taxes individuals “paid in” to the Medicare system, and does not include the portion of individuals’ income taxes used to fund Medicare, because, as CBO notes, those amounts “cannot be easily traced.”

That drawback notwithstanding, the CBO chart confirms prior Heritage analysis: The Medicare benefits most baby boomers are projected to receive vastly exceed the amount of taxes being used to fund the program. That fact, coupled with the growth in projected benefits for current and future generations of beneficiaries, illustrates why Medicare needs structural reforms in order to make the program sustainable in the long term.

This post was originally published at the Daily Signal.

Obamacare Did NOT “Fix” Medicare — It Made It Worse

Politico reported this morning that House Minority Leader Hoyer defended Obamacare as “fixing” Medicare: “We believe that the health care bill — and very frankly CBO believes the health care bill will do something that Medicare very badly needs, and that is to constrain price escalation in health care.”  Where to begin with this statement…?

  • First, a CBO study released just last week found that prior Medicare demonstration programs designed to control costs – along the same lines as those included in Obamacare – did not work at controlling costs.  What’s more, CBO added that Medicare’s fee-for-service system presents “inherent” obstacles to reducing cost growth.
  • Second, the projections that Leader Hoyer said will “constrain price escalation” are based on arbitrary payment reductions that CBO and virtually every other non-partisan expert has concluded are unrealistic.  For instance, the Medicare actuary found that provisions in Obamacare “are unlikely to be sustainable on a permanent annual basis.”  Likewise, CBO concluded that the Medicare reductions will be “difficult to sustain for a long period.”
  • Third, the Medicare “savings” have already been spent – not to improve Medicare’s solvency, but to create Obamacare’s new entitlements.  Medicare actuary Foster noted that the Medicare provisions in Obamacare “cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the [Medicare] trust fund,” and CBO agreed, writing that the Medicare provisions in Obamacare “would not enhance the ability of the government to pay for future Medicare benefits.”  Even President Obama, in an interview with Fox News, admitted that “You can’t say that you are saving on Medicare and then spending the money twice.”

So in sum: The demonstration projects designed to save money likely won’t work, the arbitrary payment reductions can’t be sustained – and even if either of the first two scenarios hold, the money saved will not actually help Medicare, because it’s already been spent to pay for Obamacare’s new entitlements.  That’s not saving Medicare – that’s making it worse.

Medicare’s Fiscal Hole STILL Larger than Greek Deficit

The Wall Street Journal reported this morning on the status of Greek debt restructuring, which was complicated by yesterday’s announcement that the Greek government ran a budget deficit of € 21.6 billion, or about $27.4 billion at current exchange rates.

However, these Greek budget deficits – which have created a fiscal crisis in Europe, and the threat of financial contagion spreading to the American banking system – are dwarfed by the ongoing deficits facing the Medicare program.  The Congressional Budget Office projected that Medicare Part A spent nearly $40 billion more than it takes last year, and run a further deficit of nearly $30 billion this year.  The only thing keeping the Medicare program afloat currently are the paper IOUs in the Medicare trust fund, and the Congressional Budget Office projects that even those will be exhausted within the decade.

The fiscal turmoil in Greece and throughout Europe provides the prime example of why our entitlements like Medicare should be fixed NOW; after all, the President’s own chief of staff admitted that the program “will run out of money in five years if we don’t do something.”  But what has the President proposed to solve these looming problems?  A deficit plan that would actually INCREASE Medicare spending, unless the President finds another $300 billion to pay for a long-term physician payment “doc fix” that the White House magically assumes would be offset.

The fact that Medicare’s fiscal shortfalls exceed that of the troubled Greek economy and government provide further indication why “We Can’t Wait” until after the President’s re-election campaign to reform our unsustainable entitlements.