CRFB Releases Analysis of Medicare Trustees Report

Today, CRFB released its analysis of the Medicare Trustees’ report on health care cost projections (for an analysis of the Social Security Trustees Report, see here). Despite the recent health care reform, Medicare costs are predicted to continue growing as a share of the economy, and Medicare Part A (Hospital Insurance), which is already running cash deficits, will likely exceed its revenue source (the HI tax) throughout the decade—and this projection is made under the most optimistic (and/or unrealistic) assumptions regarding the savings from health care reform.

Under current law, assuming the health reform legislation's spending cuts are realized, and with no further doc fixes to counteract them--two claims that are unlikely at best--total Medicare costs will grow from 3.6 percent of GDP today, to about 5 percent by 2030, 6 percent by 2050, and 6.4 percent by 2080, with the HI trust fund predicted to remain solvent through 2029. This is, overall, a considerable improvement over last year’s projections.

However, this scenario is unrealistic, since the payment reductions would likely force many providers to stop accepting Medicare in the future. Under the Medicare Actuaries Alternative Scenario, which assumes that provider payments will be updated by the Medicare Economic Index (a measure of medical cost inflation and productivity), Medicare’s costs will reach 6 percent of GDP by 2030, pass 8 percent by 2050, and exceed 10 percent after 2070. This is still an improvement from last year’s projections, but not nearly by as much as under the Trustees' current law projections. 

Regardless, these projections show progress made in Medicare’s finances as a result of the new health reform legislation, yet over the long run, the spending cuts we see today will likely prove unsustainable. Policymakers must continue to develop reforms that can sustainably slow cost growth in both the private and public sectors.

You can see our paper on the Medicare Trustees Report here.