"A 'Medicare Funding Warning' Has Now Been Declared"

There was a bit of a sleeper in the 2003 Medicare reform law - it looks like action on Medicare will be triggered this February, though it's hard to imagine much happening because of it:

The coming crisis for Medicare, by Thomas J. Healey, Commentary, Boston Globe: The Trustees of the nation's Medicare trust funds have just released their 2007 annual report, and once again the news is grave. As the result of health care costs increasing at a much greater rate than wages, the hospital insurance trust fund is projected to be exhausted by 2019. ...

Medicare's main source of money is supposed to be the dedicated revenues generated by premiums and payroll taxes. But because of the rapid growth of Medicare expenditures, program costs financed by general revenues are projected to exceed 45 percent in 2013.

Under the 2003 Medicare reform law, whenever a forecast says that the 45-percent threshold will be crossed within the next seven years, the trustees are to issue a determination of "excess general revenue Medicare funding." That determination has now been made in two consecutive years, so a "Medicare funding warning" has now been declared.

The warning requires President Bush to propose legislation that responds to the alert within 15 days of the release of the fiscal year 2009 budget -- in other words, in early February 2008. The law then requires Congress to consider the president's proposals on an expedited basis.

No one can predict the outcome of this exercise. But it will at least focus lawmakers' attention -- and the public's...

We will hear more a lot more about this, so let's focus our attention in the right place. We don't have a Medicare crisis. The problem is our health delivery system generally, and rapidly escalating costs, unserved segments of the population, projected problems with Medicare, and so on, are all symptoms of this more general issue. To solve this, we'll need to decide how best to satisfy our desire for efficient delivery of health services, equity in treatment, and rapid technological innovation that promises both new treatments improved delivery of existing services in a system-wide approach to reform. So far both Edwards and Obama have taken large steps in the right direction, but we've yet to hear much from the Clinton camp, so the full spectrum of policy proposals is not yet known.

Comments

[anne]

http://www.cbpp.org/4-20-07health3.htm

April 20, 2007

Forthcoming Medicare Trustees' Report May Contain Dubious "Medicare Funding Warning"
By Robert Greenstein and James Horney

While Medicare faces a serious long-term financing problem that must be addressed, the annual report of the Social Security and Medicare trustees to be released may contain a dubious "Medicare Funding Warning" that is based on a deeply misleading measure of the program's health.

Under a last-minute provision slipped into the 2003 Medicare prescription drug bill, the Medicare trustees are required to estimate in their annual report on the program's financial status whether general fund revenues will pay for more than 45 percent of total Medicare expenditures in any of the next six years. The law also requires that if two consecutive trustees' reports estimate that the 45-percent threshold will be exceeded, a "Medicare Funding Warning" must be issued and the President must submit, and Congress must consider, proposals to prevent the threshold from being reached.

Last year's Trustees' report contained a projection that the threshold would be exceeded in 2012. If this year's report projects the threshold will be exceeded in any year through 2013, this "trigger" will be pulled.

Unfortunately, the 45-percent threshold misdefines the basic challenge facing Medicare — which is how much the program is projected to cost, not what share of that cost comes from any given revenue source. Medicare was specifically designed to be financed in substantial part by general revenues rather than payroll taxes, in part because the latter are regressive. Payroll taxes fund only the hospital insurance part of Medicare (Part A). The physicians' insurance and outpatient services part of Medicare (Part B) and the new prescription drug benefit (Part D) are both funded by general revenues. That more than 45 percent of Medicare financing may come from general revenues poses no more of a problem by itself than the fact that 100 percent of the financing for defense, veterans' benefits, education, health research, or most other federal programs comes from general revenues....

[anne]

"We don't have a Medicare crisis." Fortunately we are coming on a national election and there is a Democratic Congress, so there will be no slashing of Medicare which has long been the intent of Republicans. George Bush, who has signed legislation increasing Medicare benefits, is not likely to introduce Medicare cuts, as concern of legacy nears. This column however is simply a traditional but vain Republican hope.

[real person from the real world]

A crisis in medicare. Same ol' rant. Do it enough times, then when John/Jane Does needs his/her medicare benefits, they won't be surprised they've been cut or won't be forthcomming, or that they are not eligible for some reason.

The problem is the same in many areas of the economy. Too many middlemen getting a cut somewhere.

[ndd]

Anne, if I read the article correctly (and I've also read the AARP site), actually, Bush WILL present proposals to slash Medicare in 2008, and the RWNM will be in full hue and cry. Furthermore, the House and Senate Rules are changed: the House must introduce his changes as a bill, and just any Senator can pull the bill out of committee for full Senate consideration, subject to filibuster.
It is safe to say, except for the maintenance of the filibuster, we almost lost Medicare.

[jamzo]

Thomas J. Healey, a retired partner of Goldman Sachs, is a senior fellow at the Kennedy School of Government. - wrote the commentary

a repubican congress passed legislation which set up the scenario for a "crisis" report to be put into the 2008 political debate on healthcare

Under the 2003 Medicare reform law, whenever a forecast says that the 45-percent threshold will be crossed within the next seven years, the trustees are to issue a determination of "excess general revenue Medicare funding." That determination has now been made in two consecutive years, so a "Medicare funding warning" has now been declared.

[anne]

Though I am simply guessing, George Bush has never found Medicare a problem even if being sympathetic to Republicans as Newt Gingrich who crusade continually against Medicare. I do not look for a presidential push against medicare, especially not during an election year.

[Bruce Webb]

"Just released"

Crap. The Medicare Report was released on April 23 and I have had my paper copy for a couple of weeks now.

"As the result of health care costs increasing at a much greater rate than wages, the hospital insurance trust fund is projected to be exhausted by 2019. ..."

True but misleading Crap. The relevant sentence from page 3 of the 2007 Report:

"Under the intermediate assumptions the HI Trust Fund is projected to be exhausted in 2019, 1 year later than in last year's report due to slightly higher projected payroll tax income and slightly lower projected benefits than previously estimated."

In other words their economic model is too pessimistic, as it has been for years. In 1992 the HI Trust Fund was projected to run dry by 1999. In 2006 it was projected to run dry in 2018. In 2007 it is projected to run dry by 2019. There is a word for a problem that recedes more than a year per year that passes. That word is not 'crisis'.

And what oh what could explain that 45%? Maybe the introduction of Medicare Part D drug coverage that comes entirely from the General Fund?

I don't follow Medicare with the same level of detail as Social Security but they always include the Report when I order the SSA one and I at least skim the summary. Healey either didn't do that much or is seriously dishonest. His sentence is cast to make it look that the outlook is darkening, and that financing is out of whack when the reality is that Medicare Part A continues to improve year after year for the same reasons Social Security's future outlook continues to improve: they are using economic assumptions that seriously downplay future revenues from the payroll tax.

As to this from NDD: "Bush WILL present proposals to slash Medicare in 2008, and the RWNM will be in full hue and cry"

Don't think so. Just about the only thing Bush actually got accomplished was the huge expansion of Medicare through the introduction of drug coverage under Part D, revisting Medicare without addressing that Elephant in the Room will be a little difficult. And where exactly do you "slash" with out getting a serious backflash from millions of voting seniors?

With apologies in advance, and considering the fact that NDD was exposed to AARP propaganda, this is crap:

"It is safe to say, except for the maintenance of the filibuster, we almost lost Medicare."

It may be safe to say that, to believe it is to ignore all political reality. Medicare is insulated by Bush's Part D. End of slightly hysterical story.

[anne]

Republicans are threatened enough, without seriously attacking voters about Medicare age. Democrats have to and will protect Medicare.

[robertdfeinman]

Mark Thoma:
You remarks about the real issue being health care delivery show just how far the conversation has moved away from this.

All the discussions are about how to fund care while not killing the goose that lays the golden eggs. Even a group like AARP has now jumped into the pool by offering Medicare supplement plans. They obviously think that things won't be changing anytime soon. I assume their contacts with congress (they are the largest lobbyist group for these sorts of issues) gives them confidence.

So the question is, how to improve care when there are so many profiting by the status quo?

[jean]

Bingo.

[bakho]

"we've yet to hear much from the Clinton camp, so the full spectrum of policy proposals is not yet known."

What about the Bush camp? He's the president, the deciderer. Bush is supposed to be dealing with these problems. Why is Bush getting a free pass? Does Mike Leavitt just get to "leave it"? Bush has economists. What is Ed Lazear proposing? He does more than find pretty pictures to cut and paste into the budget document, doesn't he? Doesn't Al Hubbard have something to say? Josh Bolton at OMB must have a clue. Are these men economic advisors or band members on the Titanic?

[ndd]

To Bruce Webb:
Had republican majorities in the House and Senate been re-elected in 2006, I have little doubt they would have had any more regard for backlash than they had to opposition to any of the other Bush policies they rubber-stamped.
Fortunately, we won't have to test for the truth of falsity of that.

[baileyman]

Sure, part of the problem is a well-worked system to boost costs, but as an insurance operation, isn't this an inequality story also? since revenues may track median income, and we know how dismal that has been.

[anne]

Remember, AARP can no longer be considered an honest public advocate, since AARP has become a major provider of health care insurance. We must also question any supposed advocacy of the NAACP and League of the United Latin American Citizens.

[mrrunangun]

Consumer info may help. You can already look up your doctor or prospective doctor on rateMDs.com and other sites. You can look up your hospital's ranking on quality measures at the medicare site and compare it with any other nearby hospitals. Next year you will be able to look up customer satisfaction data on hospitals and shortly after on individual doctors. That information should empower consumers and incentivize doctors and hospitals to miprove quality and customer satisfaction, or at least that seems to be the idea.

[robertdfeinman]

Anne:
I didn't say AARP was honest, just that it was plugged in to the present system and thus is a good barometer of what kind of change can be expected. Their ramping up in the are of Medicare policies I take as an indication they don't think much will change.

[crack]

I was actually harping on this back when the report was released.

Bruce Webb:

You should actually look at the bill. Part D amended the original Medicare to add sections requiring the president to propose "A bill to respond to a medicare funding warning." This bill has its own special rules to avoid many house and senate rules that allow for extended debate and amendment. The house and the senate are allowed to override the special rules (I think this may have been added to allow for special arm-wringing sessions, luckily it will allow the Dems to have more say in the final bill) but if the house or senate wants to avoid debate then they can just keep the special rules in effect. I have more here if anyone is interested. As fair warning I'm not a lawyer or parliamentarian, and some of this stuff seems obsfucated.

http://pipe.mydd.com/story/2007/4/24/16586/7544#readmore

[ilsm]

Anne,

I lapsed my AARP membership first renewal. Their stand in 02 regarding SS was very weak, misleading.

[ilsm]

We need to consider what "45%" means.

From what I can see it means that 45% of the medicare outlays will come from "general revenues".

I have to surmise that the general revenues in 2013 will be actually redeeming "special bonds" as the trust fund is there through 2019 or whenever the real world rerquires all the bonds to be "sold".

The real issue is general budget spending pork will be squeezed.

The oinkers are in trouble!

But let's not talk general fund cash outflows, which are a far larger issue than losing "old" safety net cash sources.

So much for watching the unified budget and ignoring general fund deficits.

[Bruce Webb]

Well a few fundamentals are in order here. Let's start with the intro to the 2007 Medicare Report

"The Medicare program has two components. Hospital Insurance (HI), or Medicare Part A, helps pay for hospital, home health, skilled nursing facility, and hospice care for the aged and disabled. Supplementary Medical Insurance (SMI) consists of Medicare Part B and Part D.

Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D initially provided access to prescription drug discount cards and transitional assistance to low-income beneficiaries. In 2006 and later, Part D provides subsidized access to
drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees."

Only Part A is funded by payroll tax and so supported by the HI Trust Fund, Parts B and D are funded by the General Fund. Which is to say that the expansion of Part D in and of itself skewed the ratio. Moreover the better Part D works the more the ratio moves, more access to proper medication presumedly reducing hospital stays to be funded under Part A. Which is to say that what Healey is pointing to in alarm may in fact be a sign that the system is working towards an optimum, it being hard to argue that having less seniors in hospital beds at any given time being a bad thing.

Which is to say the whole 45% thing is simple hysteria and a misunderstanding about how Medicare is actually financed.

[crack]

Bruce Webb:
Below is the text of the medicare part D definitions for determining 'excess general revenue'.

Whether or not the process was executed correctly doesn't change the fact that two consecutive reports have found that in the next 7 years medicare will be using 'excess general revenue'. This triggers the part requiring a presidential plan to fix it and congress acting on such a plan in 'an expedited manner'. It is true that the currently weakened Bush and the Dem congress likely won't gut medicare, but that doesn't mean Part D hasn't opened the door to future changes with this 'excess general revenue' back door.

(c) Definitions.--For purposes of this section:
(1) Excess general revenue medicare funding.--The term
``excess general revenue medicare funding'' means, with respect
to a fiscal year, that--
(A) general revenue medicare funding (as defined in
paragraph (2)), expressed as a percentage of total
medicare outlays (as defined in paragraph (4)) for the
fiscal year; exceeds
(B) 45 percent.
(2) General revenue medicare funding.--The term ``general
revenue medicare funding'' means for a year--
(A) the total medicare outlays (as defined in
paragraph (4)) for the year; minus
(B) the dedicated medicare financing sources (as
defined in paragraph (3)) for the year.
(3) Dedicated medicare financing sources.--The term
``dedicated medicare financing sources'' means the following:
(A) Hospital insurance tax.--Amounts appropriated to
the Hospital Insurance Trust Fund under the third
sentence of section 1817(a) of the Social Security Act
(42 U.S.C. 1395i(a)) and amounts transferred to such
Trust Fund under section 7(c)(2) of the Railroad
Retirement Act of 1974 (45 U.S.C. 231f(c)(2)).
(B) Taxation of certain oasdi benefits.--Amounts
appropriated to the Hospital Insurance Trust Fund under
section 121(e)(1)(B) of the Social Security Amendments
of 1983 (Public Law 98-21), as inserted by section
13215(c) of the Omnibus Budget Reconciliation Act of
1993 (Public Law 103-66).
(C) State transfers.--The State share of amounts
paid to the Federal Government by a State under section
1843 of the Social Security Act (42 U.S.C. 1395v) or
pursuant to section 1935(c) of such Act.

[[Page 117 STAT. 2359]]

(D) Premiums.--The following premiums:
(i) Part a.--Premiums paid by non-Federal
sources under sections 1818 and section 1818A (42
U.S.C. 1395i-2 and 1395i-2a) of such Act.
(ii) Part b.--Premiums paid by non-Federal
sources under section 1839 of such Act (42 U.S.C.
1395r), including any adjustments in premiums
under such section.
(iii) Part d.--Monthly beneficiary premiums
paid under part D of title XVIII of such Act, as
added by section 101, and MA monthly prescription
drug beneficiary premiums paid under part C of
such title insofar as they are attributable to
basic prescription drug coverage.
Premiums under clauses (ii) and (iii) shall be determined
without regard to any reduction in such premiums attributable to
a beneficiary rebate under section 1854(b)(1)(C) of such title,
as amended by section 222(b)(1), and premiums under clause (iii)
are deemed to include any amounts paid under section 1860D-13(b)
of such title, as added by section 101.
(E) Gifts.--Amounts received by the medicare trust
funds under section 201(i) of the Social Security Act
(42 U.S.C. 401(i)).
(4) Total medicare outlays.--The term ``total medicare
outlays'' means total outlays from the medicare trust funds and
shall--
(A) include payments made to plans under part C of
title XVIII of the Social Security Act that are
attributable to any rebates under section 1854(b)(1)(C)
of such Act (42 U.S.C. 1395w-24(b)(1)(C)), as amended by
section 222(b)(1);
(B) include administrative expenditures made in
carrying out title XVIII of such Act and Federal outlays
under section 1935(b) of such Act, as added by section
103(a)(2); and
(C) offset outlays by the amount of fraud and abuse
collections insofar as they are applied or deposited
into a medicare trust fund.
(5) Medicare trust fund.--The term ``medicare trust fund''
means--
(A) the Federal Hospital Insurance Trust Fund
established under section 1817 of the Social Security
Act (42 U.S.C. 1395i); and
(B) the Federal Supplementary Medical Insurance
Trust Fund established under section 1841 of such Act
(42 U.S.C. 1395t), including the Medicare Prescription
Drug Account under such Trust Fund

[crack]

Awesome, my huge post ends up running underneath the blog roll. I won't repost, the info is in the page at the back door link.

[Bruce Webb]

Crack, I am not sure what your point is. Nothing in your post actually supports your argument that "This triggers the part requiring a presidential plan to fix it and congress acting on such a plan in 'an expedited manner'. " I don't doubt that there is such a requirement but the notion that this represents some existential risk to Medicare needs to be spelled out a little more clearly.

The 2007 Report reads:

"Since this is the second consecutive such finding, a “Medicare funding warning” is triggered, which will require the President to submit to Congress, within 15 days after the release of the Fiscal Year 2009 Budget, proposed legislation to respond to the warning. Congress is then required to consider the legislation on an
expedited basis."

There is a whole bit of distance between "consider" and "pass" and not a lot of guidance over what would constitute the proper "response". I can be enlightened but as far as I can see the reponse of Congress might well be "Good, Part D is working to decrease the Cost of Part A, keep up the good work!" What am I missing?

[anne]

http://www.cbpp.org/4-20-07health3.htm

April 20, 2007

Forthcoming Medicare Trustees' Report May Contain Dubious "Medicare Funding Warning"
By Robert Greenstein and James Horney

The law also requires that if two consecutive trustees' reports estimate that the 45-percent threshold will be exceeded, a "Medicare Funding Warning" must be issued and the President must submit, and Congress must consider, proposals to prevent the threshold from being reached....

[Nothing need be done, and there is no danger to Medicare provided national Democrats or Republicans wish to have a chance for election in 2008.]

[anne]

This is all like, sort of, you know, the President agreeing to consider proposals for limiting carbon emissions in time some time, whenever; which I am all excitied about.

[crack]

Bruce:

I agree that given the current situation there is no existential risk to medicare. I agree that Bush has no ability to change anything right now, and that the Dems are strong enough to possibly even strengthen medicare in response to this ginned up 'warning'.

My point is that the tools have been put in place for a future assault. If this section had been triggered in 2002, a presidential plan would have been required for early 2003. With a near criminal war about to start and the Democrats cowed, the expedited process could have been the tool to severely cripple the program. Congress would've had the cover of saying 'we have to act, there is a warning!!'

I guess I've come to believe that what I used see as poorly designed plans, the poorly designed warning for instance, are actually plans designed to achieve a different purpose than for which they appear. In this case, the purpose the whole warning mechanism is not to warn. It is to provide a false imperative to act, and limit debate on actions precipitated by that imperative.

[Bruce Webb]

Well Crack, we will just have to agree to disagree here. Personally I can see no politically feasible plan to threaten Medicare whether now or back in 2003, particularly when this President was acting to expand the program with a Big Pharma friendly Part D.

Cherchez la femme. Or in this case les francs. Where do the dollars end up? Doctors and for profit Hospitals. You can squeeze them to the point that they won't freely accept Medicare patients, but that just puts them in the Emergency Room where you have to treat them whatever.

I don't know why they inserted this 45% rule back in 2003, in context it doesn't make any particular real world sense except as an opportunity for people like Healey to issue some vaguely scary threat. Which would not be unprecedented, the introduction of Infinite Future Horizon having the same effect on Social Security. But from what I see they are just blowing smoke and trying to create alarm or indeed Alarum! where nothing of the sort is merited.

Out the door. See ya later.

[worker]

You guys are delusional. Democrat or Republican doesn't matter, the program is an out-of-control ponzi scheme that is the major contributor to a $70 trillion deficit. Anything that reminds people of this simple fact is helpful.

The only thing that doesn't collapse our credit and economy currently is the widespread belief that we will in fact NOT continue on the current course. I sincerely doubt that anyone in the world wants to lend money so that the US can spend trillions keeping geriatrics alive (and collecting welfare) for a few more years. Given social needs through world, how does that rank? For the economists out there, how about return on investment compared to spending money on schools?

But rather than fixing this out-of-control entitlement, its creators now claim the solution is to expand the entitlement to the entire population? We will fix this one set of overpromises with a new set and hopefully generating sufficient political support to keep the ponzi scheme going. Except who is the at the end of this ponzi scheme when everyone is covered? US Bondholders maybe? Or maybe those rich plutocrats from the cartoons. I hate to inform you, but the bondholders move much more quickly than politicos or aging baby boomers.

The only way this will only work if the gov't begins to ration care. We can only hope this starts with the baby boomers. But when our benevolent politicians have to choose between chiropractors for aging baby-boomers and paying for experimental treatment, what do you think they will do?

Of course, when our politicians/medical commizars are forced to choose between chiropractors for aging baby-boomers and paying for experimental treatment for young cancer patients, it will take some real courage to do the right think. In the meantime, we will stop supporting the innovation that the US has brought to world health (with little support from the rest of the freeloading world).

[real person from the real world]

I posted this elsewhere, but I think it is good for this blog page as well:

So many with better than average means defend their status quo: They want what they pay for, the best and as much as they want, but not to pay out THEIR money for anyone else. Yet here is a surprising article from the June 14th NY Times:

In Health Care, Cost Isn’t Proof of High Quality
By REED ABELSON
Published: June 14, 2007
“For most consumers, the fact that there is no connection between quality and cost is one of the dirty secrets of medicine,” said Peter V. Lee, the chief executive of the Pacific Business Group on Health, a California group of employers that provide health care coverage for workers.

Money is not a gurantee of quality in an exclusive system, it can just mean that a person just pays more.

As with Engineered costs, charging "what the market will bear" and running sales games, the idea of vendors is to get as much money as you can, even if you have to resort to lies and tricks (sales gimmicks, like rebates, excessive numbers of models that vary in subtle ways, et al). One person buys something for $10 and another buys the same thing for $20.

There is a vague awareness - like with the Nokia Chocolate episode aired awhile back in these blog pages - where a marketing flunkee argued that the cost of the item was a material factor for certain types of buying, not the actual worth of the item.

Seems to me, this marketing/advertising perversion is most rampant in America. We've been too well off, for too long and got lazy.

Now, as we get squeezed, the solutions are coming from right and left:
a) tax something so people buy less
b) offer "special" deals - perscription plans
c) find ways to cut the cost of use like car pooling.

Funny, but no one likes to ask if maybe prices are out of whack to start, or part of the problem is a growing army of middlemen who pass thru services and take a cut along the way.

[real person from the real world]

Another article I saw today, talked about how different standards make it difficult to make comparisons. The article was talking about states and education and the "no-child left behind." Based on various yardsticks that vary by state, and which are designed to deal with demands for accountability.

Same way for what we buy, including health care. Bureacracy has had a bad name for so long. We used it as a whipping boy, to illustrate the evils of central planning in marxist societies.

But as we see in other western countries, more centralized medical planning and health care is cheaper and better. Some things sometimes work better when handled by government. It is time we stop equating a centralized system for a social service like health care, as evil or inefficient.

[worker]

"But as we see in other western countries, more centralized medical planning and health care is cheaper and better."

Don't know where you get the idea "better", as very few wealthy American's go to Canada or France for care, compared to those that come here.

Lower cost by the centralized medical planning in the rest of the world is freeloading on US innovations.

[real person from the real world]

Ah Yes, the real entrepreuneur "worker" speaks out. Everyone is stealing our innovations! Well, as I recall, someone once said we all stand on the shoulders of those who went before. What about medical innovations from outside the US? Maybe we should stop free loading on those? A Heart doctor I had told me that Europe was miles ahead of the US in heart research and innovation.

Here is another young healthy guy, who thinks that he can take care of himself and is working to up his accumulation in the job casinos, and anything that might come out of his pocket is a cause for concern!