Medicare's Troubles May Be Sleeping Giant
The program could run out of
funds two decades before Social Security is forecast to, experts say.
By Ricardo Alonso-Zaldivar
Los Angeles Times Staff Writer December 20, 2004
WASHINGTON - As restructuring
Social Security moves to the top of his agenda, President Bush is sidestepping a
troublesome problem: Medicare, which provides health insurance for 41 million
elderly and disabled people, is fast going broke.
Medicare is projected to
exhaust its hospital-care trust fund by 2019, more than 20 years before Social
Security is forecast to slide into the red. The day of reckoning could come even
sooner, because Medicare's condition has been going from bad to worse.
The government's unfunded
promises to future retirees under Medicare amount to a staggering $27.7 trillion
over the next 75 years, according to Congress' Government Accountability Office.
That dwarfs the $3.7-trillion liability over the same period for Social
Security.
"The Medicare problem is
about seven times greater than the Social Security problem, and it has gotten
much worse," said Comptroller General David M. Walker, head of the GAO. "It is
much bigger, it is much more immediate, and it is going to be much more
difficult to effectively address."
New technologies and
discoveries are likely to keep healthcare costs rising at a faster pace than
overall inflation, making future Medicare spending much harder to predict than
the price tag for Social Security benefits.
"Costs are going to soar, and
that is going to put tremendous pressure on federal revenues," said John L.
Palmer, one of six trustees of Social Security and Medicare finances.
"If you stand back and say,
'Which program has the greater need, which is going to be more a problem?' the
answer is clearly Medicare," said Palmer, a professor at Syracuse University's
Maxwell School.
Lawmakers, senior
administration officials and outside experts are all aware that Medicare's
current course will take it over the brink. Even Bush has acknowledged a
problem, saying Thursday at a White House economic policy conference that "we've
got more to do" on Medicare.
"Medicare suffers from all
the demographics that Social Security has and has the added problem of rising
healthcare costs," Treasury Secretary John W. Snow said in an interview.
But no one seems to want to
grapple with the implications. Politicians "just give you blank stares," said
Robert Moffitt, a health policy analyst at the conservative Heritage Foundation.
"The president wants to cut
the deficit in half, and he wants to keep the tax cut, but how are they going to
deal with the exploding costs of healthcare?" he asked. "It's almost as if
fiscal conservatives have become a fringe group here."
For elderly and disabled
Medicare beneficiaries, the talk these days is mainly of rising expectations,
not cutbacks or looming shortfalls.
The outpatient drug benefit
scheduled to go into effect in 2006 is expected to cut out-of-pocket costs for
many seniors, particularly those with low incomes. The government will spend an
estimated $500 billion over the next 10 years to help pay for medications.
Nonetheless, there are some
inklings of the crunch to come.
The Medicare Part B monthly
premium for visits to doctors' offices and other outpatient services will go up
by $11.60, or 17%, in 2005. The increase will gobble up nearly half of the $25
monthly Social Security cost-of-living increase that a typical retiree will
receive. Economists expect double-digit premium increases to continue for the
next few years.
Last year's Medicare
Modernization Act, which also created the drug benefit, included other
provisions designed to reduce Medicare spending. It contains programs to better
manage complex chronic illnesses, encourage the elderly to join managed-care
plans, use technology to handle records and claims more efficiently and provide
tests that will identify diseases earlier, when most are more treatable.
"The Medicare Modernization
Act was the first step to creating competition in the delivery of Medicare
services that, in the long term, will be able to contain costs," White House
spokesman Trent Duffy said.
But some of those ideas have
already been tried in privately funded healthcare for working-age people, with
mixed results. Their full effect on Medicare will not be known for several
years.
Meanwhile, the prescription
drug benefit, the centerpiece of the 2003 law, is one of the chief reasons for
Medicare's worsening fiscal health. It added $8.1 trillion to Medicare's
unfunded promises over the 75-year period used by government
actuaries."Medicare's problem has gotten much worse in the last year, primarily
due to the passage of the drug bill," Walker said.
In the past, Congress has
dealt with Medicare's financial problems by cutting payments to hospitals,
doctors, nursing homes and other providers, expanding the wage base that is
taxed to support the hospital-care trust fund and increasing beneficiary
premiums.
Such gradual, measured steps
are less likely to work this time around. In seven years, the first members of
the baby boom generation will begin to receive Medicare benefits. By 2030, more
than one in five Americans will be on Medicare.
"That's the big bubble that's
emerging," said Paul Fronstin, director of health research with the Employee
Benefit Research Institute in Washington. "The baby boomers are going to need
healthcare services on a grand scale."
The hospital trust fund, the
biggest part of Medicare, may also be the hardest to deal with. The fund, which
is fed by a payroll tax of 2.9% split evenly by employees and employers, is on
course to exhausting its surplus in 2019, according to Medicare's trustees.
The trustees say the funding
gap could be eliminated by more than doubling the payroll tax to 6.02%. But a
substantial tax hike on workers, millions of whom can't afford health insurance
for themselves, could spark a political backlash.
Another option is to cut
hospitalization benefits by about half.
AARP policy director John
Rother said the public would rather give back Bush's lower tax rates than accept
Medicare cuts of that magnitude. "The American people value their healthcare
very highly, and they will pay for that," said Rother, whose 35-million-member
organization lobbies on behalf of Americans 50 and older.
"Those are some mind-blowing
alternatives," Fronstin said. "It is hard for me to imagine what this program
will look like down the road."
Other options are also
unpalatable. Some doctors have said they will stop taking Medicare patients if
their rates are cut. Community hospitals might close down units, and some might
go out of business.
Congress might try to scale
back the new outpatient prescription drug benefit.
"Three-fourths of Medicare
beneficiaries already have their own drug coverage," said Moffitt of the
Heritage Foundation. "Why not target limited funds to people who need the most
help?"
But lawmakers are reluctant
to tamper with legislation that was so recently hailed as a major
accomplishment.
The Bush administration holds
out hope that new tax-free health savings accounts could someday be adapted to
Medicare, allowing individuals to control their own costs. These accounts,
created by the Medicare overhaul, allow individuals to set aside money tax-free
for health expenses not covered by catastrophic-insurance policies. But it's not
clear that such accounts would be attractive for heavy consumers of medical
services living on fixed incomes.
"We are not sure we know what
therapy will be successful," said economist Robert Reischauer, president of the
Urban Institute, a liberal Washington research group. "The condition is clearly
serious, and the consequences are obviously catastrophic. But we are, at this
stage, at a loss as to what to do."
Medicaid Emerging as Hot Topic for 2005
As the following news stories reveal, a combination of surges in
Medicaid expenses coupled with federal and state budget crises is bringing
Medicaid to the forefront of budget talks. Federal officials, as recounted in a
New York Times story, are exploring ways to shift more Medicaid costs to the
states to save federal dollars as President Bush seeks to reduce federal
deficits while continuing to cut taxes, providing for private investment in
Social Security, and financing the war in Iraq. This effort is prompting others,
such as the Chairman and Vice Chairman of the National Governors Association, in
a letter reprinted below, to urge Congress not to consider Medicaid cuts as a
way to remedy federal budget shortfalls, because states are already struggling
to manage health care expenses.
The Medicaid situation is complicated by debates internal to states. For the
first time, states will now spend more collectively on Medicaid than on
education. This is unfortunately facilitating a pitting of education advocates
against health care advocates. Although cutting Medicaid benefits can lead to
some short term cost savings, others point out that this merely creates greater
long-term expenses as people without health care often generate higher costs by
resorting to emergency care.
There seems to be a significant level of agreement that the current Medicaid
situation is unsustainable. The question is principally one of what and when and
how to do something about it. We need to be sure that the needs of people with
disabilities, including community-based services and supports, are part of this
debate.
Jonathan Young
JFA Moderator, AAPD
========================
Medicaid crowding education spending
The Lancaster Eagle Gazette
http://www.lancastereaglegazette.com
WASHINGTON -- Governors and budget officials across the country are facing a
budget crisis that pits education for children against health care for the poor.
This year, for the first time, states will collectively spend more on Medicaid
-- the federal-state health care program for the poor -- than on any other
program, including K-12 education. Medicaid is projected to account for 21.9
percent of total state spending compared with 21.5 percent for primary
education.
In 22 states, Medicaid already has surpassed primary education as the largest
expense with no relief in sight, according to a report by the National
Association of State Budget Officers.
"You have a budget pie and Medicaid just keeps growing faster than any other
program," said Scott Pattison, the group's executive director. "Something has
got to give."
States that make drastic cuts in Medicaid will see increases in people seeking
medical care at hospital emergency rooms and public clinics, and that will
translate into higher health care costs for everyone, health professionals warn.
Laura Holton, community services director of Fairfield County Job and Family
Services, said it was expected for Medicaid to take a large slice of the state
budget because health care was the key factor in the welfare reform package to
facilitate self-sufficiency.
"Many of the families who receive Medicaid are working families. This is the
only type of assistance they are receiving. If Medicaid is to be cut, these
families will not be able to afford medical coverage and preventative health
care. They will most likely be forced to go on cash assistance or they may
resort to going to emergency rooms as their primary health care," Holton said.
"In the long run, Medicaid for the working poor saves money for the taxpayers."
Since 1998, Medicaid inflation has outpaced revenue growth in state budgets,
which ran deficits in 2002 and 2003, according to the Kaiser Commission on
Medicaid and the Uninsured. Next year, Medicaid is projected to grow at 12
percent, according to the budget group. The reason: the rising cost of medical
care, from prescription drugs to long-term care.
Medicaid's increasing costs have caught the attention of education advocates,
who cite threats to everything from teacher pay to after-school activities.
"We don't like to see these programs played against one another, but this is
what is happening," said Daniel Kaufman, a spokesman for the National Education
Association. "There is no doubt that primary education will, and is, suffering,"
he said.
In Tennessee, a clash over Medicaid and education funding has created a rift
between educational groups and advocates for the state's low-income residents.
Democratic Gov. Phil Bredesen plans to cut about 430,000 recipients from
TennCare, the state's Medicaid program. Public school activists who want the
savings spent on education programs support the proposal.
Even before Bredesen made his latest proposal, Tennessee had begun restricting
eligibility for Medicaid benefits.
One of those affected was Brenda Robertson of Somerville, Tenn.
Until June, Robertson's 4-year-old son, Dalton, was getting therapy five days a
week for his cerebral palsy through TennCare. The cost: $120 per session.
But Robertson's children are no longer eligible for TennCare because state
officials decided her husband, who earns $30,000 a year as a construction
worker, makes too much money. Dalton is getting free therapy at a local Head
Start program, but that option expires in March. Robertson said the family can't
afford the premiums for health insurance offered at her husband's company.
"It's either pay for health insurance or the rent," Robertson said. "We don't
want to go on welfare to get health care. We want to make our own living. We
just need help with insurance."
Republican Gov. Mike Huckabee of Arkansas said the federal government needs to
take over the costs of long-term care for the needy, which accounts for roughly
75 percent of states' Medicaid budgets. This year, Arkansas will spend nearly 19
percent of its budget on Medicaid and 15 percent on education.
"The growth of Medicaid is not sustainable," said Huckabee, vice chairman of the
National Governors Association.
But administration officials, who are struggling to cut a record $413 billion
federal deficit, are unlikely to provide more federal Medicaid dollars for the
states.
"There are no formal proposals, but I would guess that the administration would
like to limit federal exposure," said Mary Kahn, a spokeswoman for the Centers
for Medicare and Medicaid Services.
Originally published Monday, December 20, 2004
================================
December 22, 2004
Governors Ask Bush Not to Cut Medicaid
By ALAN FRAM
ASSOCIATED PRESS
WASHINGTON (AP) -- The nation's governors on Wednesday urged President Bush not
to shift additional Medicaid costs to the states in his effort to reduce the
federal deficit. The bipartisan plea came six days after another letter to Bush
from the health-care industry, asking him not to propose carving savings from
either Medicaid or Medicare. Medicaid provides health coverage for the poor and
disabled, while Medicare helps cover the medical costs of the elderly and
disabled.
A White House spokesman would not comment on whether Bush will propose savings
from either program.
Both letters underscore the political hurdles the White House faces in paying
for its priorities in the 2006 budget it will unveil in February. Bush wants to
cut record federal deficits in half, reduce taxes, revamp Social Security and
finance the war in Iraq, anti-terrorism efforts at home and other priorities.
Medicaid, expected to cost the federal government about $190 billion next year,
is paid for jointly by Washington and the states. State officials have
complained in recent years that their financial burden for the program has
mushroomed, thanks to growing caseloads and Medicaid spending for patients in
nursing homes.
"We agree that maintaining the status quo in Medicaid is not acceptable," said
the letter from the National Governors Association. "However, it is equally
unacceptable in any deficit reduction strategy to simply shift federal costs to
states."
The letter said Medicaid expenditures now average 22 percent of state budgets,
causing "a strain on funding for other crucial state responsibilities."
Signing the letter were Democratic Gov. Mark Warner of Virginia, the association
chairman, and Republican Gov. Mike Huckabee of Arkansas, the vice chairman.
The opposition by the governors would seem to spell internal GOP battling over
any Medicaid savings proposals Bush might make. Of the 34 gubernatorial races
set for 2005 and 2006, 19 are for positions currently held by Republicans,
including California Gov. Arnold Schwarzenegger and Florida Gov. Jeb Bush, the
president's brother.
The letter from associations representing family physicians, dentists, hospitals
and others said any Medicaid cuts "would drastically unravel an already frail
health care safety net."
It added, "Medicare must be able to meet increasing needs of an aging population
that is growing in numbers." Health professionals contributed far more heavily
this year to Republican candidates for federal offices, giving $38 million to
the GOP and $22 million to Democrats, according to an analysis by the
nonpartisan Center for Responsive Politics, which tracks political spending.
Bush has said he believes automatically paid benefits -- which include Medicare
and Medicaid -- should be considered for budget savings, but he has mentioned no
specifics. Medicare is expected to cost more than $370 billion next year.
Bush is considering asking Congress to give states more leeway for spending
Medicaid funds, in exchange for eventually reducing federal expenditures for the
program, said one congressional aide speaking on condition of anonymity.
It is unclear whether he may seek to restrain Medicare spending -- less than two
years after enacting new prescription drug coverage expected to add $400 billion
or more to Medicare costs over the next decade.
"We're going to continue to make sure health care is accessible and affordable,
especially for low-income Americans," said White House budget office spokesman
Noam Neusner. "That's an important goal for this president. We're also going to
make sure we'll produce a disciplined budget."
============================
Letter to Senators Frist and Reid, Congresspersons Hastert and Pelosi, from
Governors Mark Warner and Mike Huckabee:
December 22, 2004
Dear Senator Frist, Senator Reid, Speaker Hastert, and Representative Pelosi:
The nation's Governors look forward to working closely with the Administration
and Congress to reform Medicaid. Reforming the Medicaid system is the highest
priority for the Governors, and will result in cost savings and efficiencies for
both the federal and state governments. Reform, however, should not be part of a
2006 fiscal year budget reduction and reconciliation process, especially if it
does nothing more than shift additional costs to states.
Governors are committed to administering the Medicaid program in a very
cost-effective way, and as equal partners in the program have a tremendous
incentive to continue doing so. This is reflected in the fact that the annual
growth in Medicaid per capita spending has not exceeded approximately 4.5
percent per year, substantially below the growth rate of private health
insurance premiums, which have averaged 12.5 percent per year for the last three
years. Total Medicaid costs, however, are growing at a rate of 12 percent per
year and now total Medicaid expenditures exceed that of Medicare primarily due
to two major factors that are largely beyond the control of states. First,
states, over the last four years, have experienced large case load increases of
approximately 33 percent. Second, and far more costly to states, are the impacts
of long-term care and of the dual eligible population. Medicaid currently
accounts for 50 percent of all long-term care dollars and finances the care for
70 percent of all people in nursing homes. Furthermore, 42 percent of all
Medicaid expenditures are spent on Medicare beneficiaries, despite the fact that
they comprise a small percentage of the Medicaid caseload and are already fully
insured by the Medicare program. Benefits for the dual eligible population
should be 100 percent financed by Medicare.
We agree that maintaining the status quo in Medicaid is not acceptable. However,
it is equally unacceptable in any deficit reduction strategy to simply shift
federal costs to states, as Medicaid continues to impose severe strains on state
budgets. Our most recent survey of states shows Medicaid now averages 22 percent
of state budgets. This commitment has caused a strain on funding for other
crucial state responsibilities. These funding challenges will become more acute
as states absorb new costs to help implement the Medicare Modernization Act for
the millions of dual eligible beneficiaries.
We look forward to working with you on Medicaid reform.
Sincerely,
Governor Mark R. Warner
Chairman
National Governors Association
Governor Mike Huckabee
Vice Chairman
National Governors Association
============================
Administration Looks to Curb Growth of Medicaid Spending
By ROBERT PEAR
December 20, 2004
The New York Times
WASHINGTON, Dec. 19 -- Federal officials are sending auditors to state capitals
across the country to investigate techniques used by states to shift hundreds of
millions of dollars in Medicaid costs to the federal government.
Also, under a proposed federal rule, the Bush administration will require states
to prepare annual estimates of total improper payments and calculate payment
error rates for Medicaid and the State Children's Health Insurance Program.
States will have to identify the cause of each error, address it and recover any
overpayments to health care providers.
The moves come as the administration is considering a wide range of other new
initiatives to curb the growth of Medicaid spending, crack down on improper
payments and help states save money by restricting eligibility and benefits.
Federal investigators said Medicaid wasted hundreds of millions of dollars a
year by overpaying for prescription drugs. Many states pay on the basis of
inflated, fictitious list prices reported by drug companies. One of the
initiatives would link payments to actual market prices, which are often much
lower.
Federal health officials said the nomination of Michael O. Leavitt as secretary
of health and human services signaled the administration's desire to make big
changes in Medicaid, like those Mr. Leavitt made as governor of Utah.
Under one proposal, states would be allowed to make many changes like increasing
co-payments and limiting eligibility without having to get federal waivers.
Local officials would also be allowed to provide different benefits in different
parts of a state.
Such plans will stir impassioned debate in Congress. In a letter to President
Bush last week, 47 Democratic senators expressed "opposition to any Medicaid
reform proposal that seeks to impose a cap on federal Medicaid spending in any
form or eliminates the fundamental guarantee to Medicaid coverage for our
nation's must vulnerable citizens."
Medicaid is financed jointly by the federal government and the states. Gov. Mike
Huckabee of Arkansas, a Republican who is vice chairman of the National
Governors Association, said, "None of us could live with 10-year caps on
spending" of the type favored by the Bush administration. If federal spending is
capped and the number of Medicaid recipients increases sharply, Mr. Huckabee
said, states will face dire fiscal problems.
But he said, "We would like to see the federal government give us more authority
and power to control the costs and utilization" of health care under Medicaid.
The Bush administration and senior Republicans in Congress said they were
developing proposals to do just that. States, for example, would be allowed to
charge higher fees to higher-income people.
Medicaid, originally intended for the poor, has been expanded in some states to
cover families with incomes up to twice the poverty level. But the limit on
co-payments is still $3 for a prescription drug, regardless of a family's
income.
Lawmakers have talked of overhauling Medicaid for a decade, but a confluence of
forces has added new urgency to the debate, which will begin in earnest when
Congress convenes next month.
Medicaid spending shot up 63 percent in the last five years. With more than 50
million beneficiaries and more than $300 billion a year in combined federal and
state outlays, Medicaid is now bigger than Medicare. For prescription drugs
alone, Medicaid spending soared to $34 billion in 2003, from $13.6 billion in
1998.
Mr. Bush has vowed to cut the federal budget deficit by half in five years, and
Republican leaders in Congress say that goal will be virtually impossible
without touching Medicaid. Gary R. Karr, a spokesman at the Centers for Medicare
and Medicaid Services, said the administration would work with Congress to come
up with "a long-term solution that helps state budgets while improving health
outcomes for beneficiaries."
The growth of Medicaid has outstripped the growth of state revenues and is
putting pressure on other state programs. This year, for the first time,
Medicaid was a larger component of state spending than elementary and secondary
education combined, the governors association said.
Court decisions have upheld the rights of Medicaid recipients to sue for the
denial of benefits, limiting the options for state officials who want to cut
costs.
"When we try to curb expenses, we inevitably get sued in federal court, and we
always lose," Mr. Huckabee said in an interview.
Several states have tried unsuccessfully to deny benefits to poor children.
Louisiana, for example, refused to cover disposable diapers prescribed by a
doctor for a 16-year-old boy with spina bifida who had no control over his bowel
or bladder. The United States Court of Appeals for the Fifth Circuit, in New
Orleans, ruled last month that the state had to cover such supplies for
children, regardless of whether they were available to adults.
Services for a child must be "determined by reference to federal law, not state
preferences," the court said. Under the law, it said, states must cover any
services needed to correct or ameliorate conditions discovered through medical
screening of a child.
In examining how states may be shifting costs to the federal government, the
Bush administration contends, for example, that Massachusetts improperly
obtained more than $580 million in federal Medicaid money without paying its
share. Gov. Mitt Romney, a Republican, met recently with Andrew H. Card Jr., the
White House chief of staff, to defend the state's method of financing.
All state Medicaid programs cover prescription drugs. Federal Medicaid officials
said they were now willing to let states limit the number of prescriptions, and
the number of pills per prescription, for adults. But, they said, such limits
cannot eviscerate the drug benefit, which under federal rules must be
"sufficient in amount, duration, and scope" to meet the needs of most adults.
Federal officials pointed to Utah's Medicaid program as an example of the kind
of changes they would accept in other states. "That's the direction the
administration wants to go," said a federal Medicaid official who spoke on
condition of anonymity because the administration is still working out details
of its plan.
As governor, Mr. Leavitt obtained a federal waiver allowing Utah to provide
Medicaid coverage to more people at no additional cost to the federal
government. To accomplish that feat, the state reduced benefits for some people
on the rolls and provided a limited set of benefits to new recipients. The new
group got coverage for primary care doctors and four prescriptions a month, but
the benefit package did not include hospital care or mental health services.
Medicaid is now an entitlement, guaranteed to anyone who meets the federal and
state eligibility criteria.
In 1995, Congress passed a bill to end the individual entitlement and let each
state devise its own program with a lump sum of federal money. Lobbying for that
proposal, Mr. Leavitt, who was then chairman of the Republican Governors
Association, said, "We are unanimously opposed to inclusion of individual
entitlements" in the Medicaid bill. The bill was part of a deficit-reduction
measure vetoed by President Bill Clinton.
The Bush administration is working with Congress to limit Medicaid payments for
prescription drugs. Representative Joe L. Barton, Republican of Texas and the
chairman of the Committee on Energy and Commerce, said: "The current system is
broken and needs to be fixed. The government reimbursement rate has to be based
on an actual price that somebody pays, not just a posted price, a sticker
price."
Patrick J. O'Connell, an assistant attorney general of Texas, said some
pharmacies had received "windfall profits" because Medicaid had paid them far
more than it cost to buy drugs from manufacturers and wholesalers. Moreover, Mr.
O'Connell said, some manufacturers "purposely reported false and inflated prices
to Texas Medicaid."
Two drug companies have paid the state $45 million to settle Medicaid fraud
charges.
Last Updated on
12/29/04
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