By Julie Rovner JULY
22, 2020
KHN's
chief Washington correspondent, Julie Rovner, who has covered health care for
more than 30 years, offers insight and analysis of policies and politics in her
regular HealthBent columns.
Everyone
involved even tangentially in health care today is completely consumed by the
coronavirus pandemic, as they should be. But the pandemic is accelerating a
problem that used to be front and center in health circles: the impending
insolvency of Medicare.
With
record numbers of Americans out of work, fewer payroll taxes are rolling in to
fund Medicare spending, the numbers of beneficiaries are rising, and Congress
dipped into Medicare’s reserves to help fund the COVID-19 relief efforts this
spring.
“I think
we have a real, impending health care crisis,” said Dr. David Shulkin, who was
undersecretary for health at the Department of Veterans Affairs under President
Barack Obama for two years and led the VA for a year under Donald Trump.
In
April, Medicare’s trustees reported that
the Part A Trust Fund, which pays for hospital and other inpatient care, would
start to run out of money in 2026. That is the same as the projection in 2019.
But the trustees cautioned at the time that their projections did not include
the impact of COVID-19 on the trust fund.
“Given
the uncertainty associated with these impacts, the Trustees believe that it is
not possible to adjust the estimates accurately at this time,” said the report.
So
Shulkin, now a senior fellow at the Leonard Davis Institute of Health Economics
at the University of Pennsylvania, did his own projections.
Given even a conservative estimate of how many workers and businesses would not
be contributing payroll taxes that finance Part A spending, he said, the trust
fund could become insolvent as early as 2022 or 2023.
“I
think this is something that needs more immediate attention,” he said.
Others
who make projections agree the insolvency date is getting closer, maybe not as
close as 2022.
The Committee for a Responsible Federal
Budget, a nonpartisan group of budget experts focused on fiscal
policy, estimates that the pandemic will cause the Part A Trust Fund to be
unable to pay all of its bills starting in late 2023 or early 2024. “But we’re
still very close,” said Marc Goldwein, the group’s senior vice president.
There
are two ways the Trust Fund can get into trouble: Either the money flowing in
is too little, or the payments going out for care are too much.
Most of
those who watch Medicare finances agree that the larger problem right now is
how much money is being collected for the Trust Fund. That money largely comes
from the 1.45% payroll tax paid by employees and employers. With so many people
out of work due to pandemic-related shutdowns, cash flowing in has dropped
dramatically.
It’s
far less clear what is happening on the spending side of Medicare Part A.
(Medicare Part B, which pays physicians and other outpatient costs, is funded
by beneficiary premiums and general tax funding, so it cannot technically
become insolvent.)
While
COVID-related hospital expenses for those on Medicare are expected to be
substantial, Medicare hasn’t been reimbursing as much care of other sorts. In
some cases, that’s because hospitals in COVID hot spots temporarily stopped
doing elective procedures like joint replacements. In other cases, patients
with non-COVID ailments have been afraid to go to hospitals for fear of
catching the virus.
Also,
said Goldwein, health care use tends to fall in recessions, even for Medicare,
whose beneficiaries are largely retired.
In the
end, he said, “we basically threw our hands up and said we don’t have the
information” to estimate how health costs will affect the Trust Fund’s
financing.
There
is one other COVID-related policy that could hasten the depletion of the Trust
Fund. At least $60 billion of the funding provided as part of the CARES Act to
help hospitals weather the pandemic came not from the general treasury, but
from the Trust Fund itself.
That
money in “accelerated and advance payments”
is supposed to be paid back, via a reduction in future payments. But there is a
push in some quarters for that funding to be forgiven, which would make the
Trust Fund’s hole even bigger.
It is
not exactly clear what would happen if the Trust Fund were to become insolvent
because it has never happened before. As the Congressional Research
Service pointed out, “There are no provisions in the
Social Security Act that govern what would happen if insolvency were to occur.”
It is
important to remember that the fund becoming insolvent is not the same as being
bankrupt. Insolvent means the Trust Fund would still have money flowing in, but
not enough to pay for all the care Medicare patients will consume.
Most
budget experts think that Medicare would reimburse hospitals and other Part A
providers 100% of their claims until the fund truly runs out of money. Then it
would pay claims only as more money flows in. Others think Medicare might
reimburse only a percentage of those claims, but that might require
congressional action.
Meanwhile,
one would expect the hospital industry to be ringing the alarm bells as
potential insolvency approaches. But that’s not happening.
“They’re
more concerned with next month than with 2023 at this point,” said Goldwein.
Chip
Kahn, president and CEO of the Federation of American Hospitals, agreed. “I’m
not going to worry about this right this minute,” he said. “At this point, my
focus is completely on COVID.”
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