The New Health Dialogue

While briefing my colleagues on today's Annual Report from the Medicare Trustees, I was forced to ask: do you want the good news, or the bad news?

The good news is that Medicare provided quality, affordable health coverage for 45.2 million of the most vulnerable Americans in 2008.

The bad news is that without substantial reforms to the Medicare program—this level and quality of coverage will not be sustainable, even in the near future.

Specifically, the bad news centers on the approaching insolvency of the Medicare Hospital Insurance (HI) Trust Fund (that finances Medicare Part A). In years past, the trustees have slowly moved forward the date at which the HI trust fund will go bankrupt—and this year is no different. According to the report, the assets of the HI trust fund will be exhausted during 2017—nearly 2 years earlier than previous projections.

What this means is that we have hit a point where the income from taxes dedicated to the Medicare program is outstripped by the cost of the program. In fact, tax income will only make up 88 percent of the costs of care provided in 2009. As a result, Medicare is being forced to dip into its trust fund to make up the difference between receipts and expenditures. The problem is that the trust fund was valued at only $381 billion in 2008—and so, can only make up the difference until 2017—when it will be exhausted.

While part of the shortfall in financing can be attributed to the recession—which provided lower-than-expected income tax receipts—the real problem is the ever-escalating cost of health care. Unless we can do something to reign in system-wide health care cost-growth, the continuing financing problems highlighted in this report will only worsen.

Almost more shocking than the state of the HI trust fund was the bleak news about cost growth in other parts of Medicare. Most analysts look to Medicare Parts B and D for the "good news" about the program. Part B provides care for physician visits, home health, and other services and Part D provides subsidized access to prescription drugs. Instead of relying on tax income, these two portions of Medicare receive their revenue in the form of premiums that are matched to expected costs. This means that the trust fund for Parts B and D will continue to be solvent as long as they can charge premiums that will cover their costs.

But, this year's report shows that Parts B and D are experiencing extremely high cost growth—perhaps imperiling their ability to charge high-enough premiums to cover costs. Over the past five years, Part B has grown at an average rate of 7.8 percent per year and Part D is expected to grow at 11.1 percent per year until 2018. GDP, on the other hand, is only projected to grow at 4.5 percent. This puts cost growth in these programs at the obviously unsustainable levels of almost-double and more-than-double the rate of growth of the economy.

While I may have thrown a lot of numbers around in a fairly short time, (and will do my best to explain these concepts further in future posts) the bottom line of this report is that our current health system—including and especially Medicare—must change. Our current cost trajectories are unsustainable and we must act in order to protect the important coverage provided by Medicare and health insurance in general.