June 1, 2013

Medicare's prognosis a bit less dire

Insolvency is postponed for two years, but changes are still needed, federal officials say.


(Continued from page 1)

Jack Lew, Kathleen Sebelius
click image to enlarge

Treasury Secretary Jacob Lew and Health and Human Services Secretary Kathleen Sebelius speak about Social Security and Medicare on Friday in Washington.

The Associated Press

Obama has proposed significant changes to both benefit programs, in the context of budget talks. Those include a formula change that would pare cost-of-living increases for retirees, and nearly $400 billion in Medicare savings, mainly from cuts to service providers. Congressional Republicans want to do more, particularly on Medicare, by converting the program into a private insurance system.

Social Security is financed by a 6.2 percent tax on the first $113,700 of workers' wages, paid by both employers and workers. Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012, though the program's finances were being made whole through increased government borrowing.

The Medicare tax rate is 1.45 percent on all wages, paid by both employees and workers.

Blahous said if Social Security's shortfall were to be fixed immediately by boosting the payroll tax alone, that rate for workers and employers together would have to be increased from its current 12.4 percent to nearly 15.1 percent. If action were delayed until 2033 -- the year of insolvency -- the tax would have to rise to 16.5 percent.

If the savings were to come only from reducing benefits and were made immediately, the benefits would have to be cut 16.5 percent for both current and future recipients.

Targeting future beneficiaries alone would mean benefit cuts of nearly 20 percent.

Waiting until 2033 to impose the changes would mean benefit cuts of 23 percent for current and future recipients. If cuts were limited to future beneficiaries, even wiping out all of their benefits would not close the shortfall, said Blahous.

"The window of opportunity to deal with Social Security closes well before the early 2030s," he said.

Not all the news was bleak.

The trustees projected a 2 percent Social Security cost-of-living increase for 2014. And the monthly Medicare Part B premium for outpatient care was projected to remain the same as this year. That's generally $104.90, although upper-income retirees pay more.

The good news for Medicare may not last. The program's future costs are difficult to estimate, subject not only to economic fluctuations and the aging society but also to the impact of the latest drug or technological breakthrough.

Nonetheless, the trustees said the overall slowdown in health care spending is providing relief for Medicare. It was the main reason for extending the life of the trust fund by two years. The report said there was a particularly sharp drop in spending on nursing home care. Medicare pays for limited nursing home stays while patients recuperate from hospitalization.

Also cited were reductions in payments to popular Medicare Advantage plans, the private insurance alternative within the program. About 1 in 4 Medicare beneficiaries are in such plans, which offer lower out-of-pocket costs usually in exchange for limitations on the choice of hospitals and doctors. The plans had once been overpaid when compared to the cost of care in traditional Medicare, but Obama's health care law cut back those payments.

Public trustee Reischauer, who specializes in health care economics, said he's hopeful and cautiously optimistic that the slowdown in health care costs will continue.

HHS Secretary Sebelius said the health care overhaul "has helped put Medicare on a more stable ground without eliminating a single guaranteed benefit."

But the top Republican on the Senate Finance Committee, Utah Sen. Orrin Hatch, said the report "shouldn't give anyone comfort" because Medicare's slower spending reflected the country's weak economy, even as the program faces rapidly growing numbers of recipients.

"Reforming Medicare and Social Security is a national imperative that policymakers on both sides of the aisle and at the White House must embrace," Hatch said.

AARP, the seniors lobby, said it will continue to fight cuts in either program.


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