By Melanie Zanona, CQ Roll Call
July 22, 2015 -- The continued slow growth of Medicare hospital costs is positive news for federal spending, but rising costs in outpatient care and especially prescription drug costs are a growing threat to the system's financial health, according to an annual report by the health program's trustees.
Medicare's benchmark Hospital Insurance Trust Fund will be depleted in 2030, the trustees' report stated Wednesday, echoing the projection they made last year but saying it was more certain with Congress' decision to change the way physicians are reimbursed. Trustees project that enough dedicated revenues will flow into the program to fund 86 percent of obligations in 2030, a share that will decline to 80 percent in 2050 and will rise gradually to 84 percent in 2089. Hospital insurance, or Medicare Part A, is a partial measure of the program's financial health.
But while outpatient and prescription drug program costs have both grown on average slightly more than 5 percent per year over the last five years, the trustees project that outpatient Part B costs will rise 6.7 percent over the next five years and Part D prescription drug costs will rise 10.9 percent over the next five years. Factors include the slowing growth in generic drug use and the recent federal approval of a number of high-cost drugs.
Medicare Part B, which pays for doctor office visits and other outpatient expenses, is expected to remain adequately financed. But trustees predict that Part B costs will grow steadily from 2 percent of the gross domestic product (GDP) in 2014 to 3.4 percent of GDP in 2035 and 3.8 percent by 2089, due to the aging population and rising health care costs.
Medicare spending levels could trigger a cost-cutting board mandated by the health overhaul, known as the Independent Payment Advisory Board (IPAB), as early as 2017, according to the report. Last year, the per capita growth rate wasn't projected to exceed the per capita target growth rate until closer to 2023.
IPAB has been a top target for the GOP in its efforts to gut the health care law, although the board has yet to be triggered. Democrats had argued that scenario is far off, but the recent data could ramp up calls for its repeal.
"This underscores the importance of repealing the IPAB provisions of the Affordable Care Act before that date arrives," said Mary R. Grealy, president of the Healthcare Leadership Council, in a statement. “IPAB, as structured, would result in arbitrary cuts to what Medicare pays for healthcare services instead of pursuing far-sighted reforms that strengthen the program's value.”
Health and Human Services Secretary Sylvia Mathews Burwell noted that 70 percent of enrollees will see no change in their Part B outpatient premiums for 2016. For the remainder, the "final decision will be made in the coming months based on the preliminary projections today, additional data and the administration's considerations," she said. The decision, expected in October, affects people including those who enroll in Part B for the first time in 2016; those who don't get Social Security benefits; and higher-income beneficiaries.
Total Medicare costs will grow from 3.5 percent of GDP in 2014 to 5.4 percent of GDP by 2035 and to 6 percent of GDP by 2089. Although projections for Medicare's total costs are little changed over the next 20 years, trustees said they are substantially lower over the long range.
One big difference from last year's report is that Congress has replaced the so-called sustainable growth rate, a formula that dictated how Medicare physicians get paid.
Treasury Secretary Jacob Lew said the repeal of the SGR—which prompted Congress to enact years of temporary "doc fix" funding patches in order to avert scheduled fee cuts—has helped improve Medicare's long term outlook, along with the 2010 health care overhaul and payment models geared to the quality of health services over quantity.
A permanent doc fix is something "that has eluded Washington for 13 years," Lew said. "We must and can achieve this progress again."
Trustees issuing their annual report also noted that the estimate of the trust fund's solvency is 13 years longer than the one released prior to the passage of the Affordable Care Act. This year's report marks the 50th anniversary of the federal health insurance program for the elderly and disabled.
But trustees warned that the program still faces challenges and a major financial shortfall, especially as the baby boomer population grows older, which they said will need to be addressed with legislation.
"The sooner policymakers address these issues, the less disruptive it will be and the economy as a whole will have an easier time adjusting," said trustee Robert Reischauer.
Melanie Zanona can be reached at [email protected].