Some policy observers worry that the provider cuts on which the existing projections are built may not be sustainable.


June 23—Medicare’s Hospital Insurance Trust Fund moved two years closer to insolvency in the latest report from the Medicare trustees. However mandatory cuts by a controversial board will not be required until at least next year.

Among the key findings of the annual report of the Boards of Trustees for Medicare was that the program, which spent $648 billion in 2015 to provide care to 55.3 million beneficiaries, will lack sufficient funds to cover Part A costs by 2028, or two years earlier than the projection in last year’s report.

The report blamed the worsening financial status of the trust fund on “slightly higher” than projected 2015 spending and slightly lower Medicare payroll taxes garnered in 2015, due to slower real-wage growth. Insolvency could come as soon as 2022 if certain adverse conditions materialize, according to the report.

Another major finding was that automatic spending cuts initiated by the Independent Payment Advisory Board (IPAB) will not be triggered in 2016. The board, which was authorized by the Affordable Care Act (ACA), has drawn widespread healthcare industry opposition for its ability to unilaterally cut spending without congressional approval. If IPAB members are not confirmed by the Senate, the law requires the secretary of the U.S. Department of Health and Human Services to select the necessary cuts.

Despite the 2016 IPAB reprieve, the trustees projected that IPAB would have to cut Medicare growth by 0.2 percentage points in 2017 if spending doesn’t slow down. Any cuts that are required next year would take effect in 2019, based on the process established by the ACA.

“There is a fair likelihood that there will be an IPAB determination next year” requiring Medicare cuts, Paul Spitalnic, chief actuary for the Centers for Medicare & Medicaid Services (CMS), said at a discussion of the trustees’ report.

At least one health policy expert said Medicare Advantage plans were the most likely target for those cuts, if they occur. Joe Antos, a scholar at the right-leaning American Enterprise Institute (AEI), said during the discussion that ACA requirements limiting the impact of the cuts on beneficiaries would leave Medicare Advantage insurers as the most logical target.

Social Security’s retirement and disability trust fund reserves were projected to be exhausted in 2034, which was unchanged from last year’s report.

Policy experts said one finding in the trustees’ report is likely to spur congressional action this year: the projection of a sharp increase in Part B premiums—from $121.80 this year to $149 next year—for about 30 percent of enrollees. Congress acted last year to avert a similar increase that was projected in the 2015 report.

However, the Part B projections are not final, and the final premium hikes required might be different.

Provider Impacts

The report underscored the critical role of already-approved future payment cuts for providers in keeping long-term Medicare spending in check. Some policy analysts questioned whether the cuts are sustainable.

For instance, the report noted that ACA rate cuts, federal budget sequestration, reduced Medicare and Medicaid disproportionate share hospital payments, and healthcare coverage expansions were expected to lead to negative margins at about half of hospitals by 2040.

James Capretta, a senior fellow at the Ethics and Public Policy Center, said such cuts—and the sustained, years-long productivity increases needed to avoid them—were not viable.

“There is an element of unrealism to all of this,” Capretta said during the discussion of the report.

Hospitals are unlikely to make the productivity improvements needed to offset the accumulating annual cuts, meaning quality eventually will suffer, according to Capretta.

“It’s going to be hidden, people may not realize it, and it’s going to be very subtle, but people should understand that is what is potentially at stake here,” Capretta said. 

Other provider cuts that may prove similarly unsustainable are those included in the Medicare Access & CHIP Reauthorization Act of 2015 (MACRA). The trustees’ report noted that physicians ultimately will be paid less under MACRA than they were under the previous Medicare physician payment system—known as the sustainable growth rate formula (SGR)—which was replaced to avoid steep physician pay cuts.

“Doctors are going to be absolutely livid when they absorb the fact that they spent so much political capital enacting MACRA to get rid of the SGR … but under the current system doctors are going to be paid less,” said Robert Moffit, a senior fellow for the right-leaning Heritage Foundation.

Alice Rivlin, a senior fellow at the left-leaning Brookings Institution, questioned the accuracy of the projected MACRA payment cuts.

“Whatever the projections, MACRA is a step up from the SGR because it does focus attention on a strategy of improving payment incentives,” Rivlin said, referring to MACRA’s quality measurement provisions.

Reform Hope

Rivlin and Spitalnic both highlighted the potential for large improvements in cost, quality, and provider productivity from ongoing payment reforms authorized by CMS’s Center for Medicare and Medicaid Innovation, which was created by the ACA. However, the actuary has certified only two relatively small programs—Pioneer accountable care organizations (ACOs) and a diabetes prevention program—as succeeding in cutting costs while improving quality.

A May report by HHS’s Office of the Inspector General raised questions about those Pioneer results after it found CMS secretly and retroactively switched several Pioneer ACOs to one-sided risk models to reduce their losses by millions of dollars. 

Meanwhile, the actuary has not been asked to certify whether the much larger Medicare Shared Savings Program similarly saved money and improved quality, Spitalnic said in an interview.

Rivlin noted success in reducing hospital-acquired conditions in recent years, although she worried the financial incentives may be insufficient to drive further improvement. Rivlin also highlighted hospital success in recent years in reducing unnecessary readmissions after associated ACA penalties began.

Overall ACO results could improve, said Rivlin and others, if enrollees were incentivized to contribute to providers’ efforts to improve their health. For instance, informed Medicare beneficiaries could make sure they seek care only from providers in the ACO, which would allow those entities to better control the quality of care their patients receive, according to Antos.

“They don’t even know that they are supposed to stay within a network,” Antos said.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C. office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Thursday, June 23, 2016