Medicare Trustees Report: Projections Similar to Last Year, and Savings Are Available

On April 22, 2020, the Medicare and Social Security Trustees released their 2020 annual report, which offers projections concerning the fiscal health of the Medicare and Social Security programs.  The Medicare Trustees estimate that the Part A Trust Fund will be depleted by 2026, unchanged from last year’s projection.

As noted in a summary issued by the Trustees, however, “[t]he projections and analysis in these reports do not reflect the potential effects of the COVID-19 pandemic on the Social Security and Medicare programs. Given the uncertainty associated with these impacts, the Trustees believe that it is not possible to adjust their estimates accurately at this time.”

As we noted last year, and in previous years, even if the Trust Fund were to be depleted as projected, the program would still be able to pay out approximately 90% of Medicare Part A benefits. While not ideal, this is far from “bankruptcy.”  Further, the date of projected insolvency is an estimate, and could easily change again – as it has many times before.

The Trust Fund largely reflects the health of the economy. At various times since 1970, the trustees have projected Trust Fund insolvency in as few as four years or as many as 28 years.  While the Part A Trust Fund is mostly funded by payroll taxes, Medicare Part B is funded by a certain percent of general revenues and premiums, and therefore cannot “go broke.”

In fact, Medicare as a whole is not "going broke."  It could be strengthened with better oversight of private Medicare Advantage plans, smarter prescription drug payment limitations, support for Affordable Care Act provisions, rolling back the over-zealous tax cuts, incremental increase to the payroll tax, and other cost-effective planning and policies.

As we have also noted in previous years, the Trustees’ projection should not be used as an excuse to cut Medicare benefits for older and disabled people.  As demonstrated by the positive impact the Affordable Care Act had on increasing the life-span of the Trust Fund, the problem is fixable without reducing benefits. Instead, the Administration and Congress should negotiate drug prices for the whole Medicare program, end efforts to repeal and sabotage the Affordable Care Act, and stop wasteful Medicare Advantage overpayments.

Overpayments to Medicare Advantage (MA) plans continue to negatively impact Medicare’s finances.  According to the summary of the 2020 annual report released by the Trustees, the “principal changes [from last year’s estimates] exclusively affecting Medicare are:

• Lower projected spending due to a methodological change in the projection of health care spending that considers time until death.
• Higher projected enrollment and spending per beneficiary in Medicare Advantage.
• Higher projected spending outside the prospective payment system for acute care hospitals.”

In other words, lower overall spending was offset, in part, by higher spending on MA plans.  As noted by the Medicare Payment Advisory Commission (MedPAC), in a summary of their March 2020 report to Congress, the Commission “estimate[s] that total Medicare payments to MA plans will average about 100 percent of FFS spending in 2020. Quality bonuses in 2020 will account for 2 percentage points to 3 percentage points of these payments. We estimate uncorrected coding intensity would add 2 percentage points to 3 percentage points to payments relative to FFS” [emphasis added].  In other words, because of manipulation of risk scores, MA plans are still paid on average 102-3% of what traditional Medicare would spend on a given individual.

Similarly, as discussed in a previous Alert in February of this year, the Congressional Budget Office (CBO) projected that Medicare spending will be higher than previously thought, largely due to MA spending. This higher spending was attributed to higher payment rates and the likelihood that more MA enrollees “will be coded as being in poorer health than the agency previously anticipated” the CBO said.

As noted in a December 2019 HHS OIG report discussed in a recent Center Alert, risk-adjusted payments “may create financial incentives for [MA plans] to make beneficiaries appear as sick as possible to obtain higher payments. CMS estimates that from 2013 through 2016, Medicare paid $40 billion in overpayments that resulted from plan-submitted diagnoses that were not supported by beneficiaries’ medical records.”

If Congress wants to address Medicare’s finances, particularly in light of the unknown financial impacts of the COVID-19 crisis, it should start with reducing this wasteful spending on Medicare Advantage plans.