Medicare Trust Fund Looks Awful

By Allison Bell

May 25, 2012

The AAA says putting off fixing Medicare will make matters worse.

The actual financial condition of the Medicare hospital insurance trust fund is probably worse than the grim official projections based current federal law suggest, according to the American Academy of Actuaries.

The AAA, Washington, has presented that conclusion in a Medicare issue brief developed in response to the latest Medicare trustees' report.

The trustees themselves have said in earlier Medicare reports that the official numbers understate Medicare's problems, and a team of Medicare trustees' technical advisors met in January 2011 to talk about concerns about the actuarial assumptions, economic assumptions and methods used to create the official trust fund projections.

The trustees now are predicting in their official projections that the Medicare hospital insurance trust fund will run dry in 2024. That forecast is unchanged from what the trustees announced a year ago, the AAA says in its brief.

The Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS), an arm of the U.S. Department of Health and Human Services, developed an alternative scenario at the request of the Medicare trustees.

One big difference between the official projections and the alternative scenario is that the official projections assume Medicare would impose significant Medicare provider reimbursement cuts every year for many years. The CMS Office of the Actuary assumes the reimbursement cuts would slow beginning in 2020.

The official projections indicate that the hospital insurance fund's 75-year deficit is equal to about 1.35% of projected taxable payroll, the AAA says.

The alternative scenario indicates that the 75-year deficit could be 2.43% of taxable payroll, the AAA says.

The trustees are officially projecting that Medicare alone will eat up 6.7% of U.S. gross domestic product (GDP) in 2085, but the alternative scenario suggests that Medicare could eat up about 10% of GDP.

The AAA's Medicare steering committee wants to see Congress act to restore the long-term sustainability of the program, the AAA says.

"The sooner such corrective measures are enacted, the more flexible the approach and the more gradual the implementation can be," the AAA says, in bold type. "Failure to act now will necessitate far more drastic action later."

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CORRECTION: Actuaries are projecting the main Medicare trust fund will run dry in 2024. The year was identified incorrectly in an earlier version of this article.

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