Understanding the Medicare Trust Fund
In their recently released report, the Medicare trustees have projected that the Part A trust fund, also known as the Medicare Hospital Insurance (HI) trust fund, will remain solvent through 2024. This is the same conclusion that the trustees made last year. Reforms included in the Affordable Care Act (ACA) have strengthened Medicare’s financial outlook and extended solvency through 2024.
The Part A trust fund and its solvency are frequently misunderstood. The trust fund is a financing mechanism for Medicare Part A, which covers inpatient services such as hospital stays and skilled nursing facility care. The trust fund is financed through a combination of payroll taxes and other revenues. Although, as noted above, the trustees have recently reported that the trust fund is solvent through 2024; that does not mean that the trust fund or Medicare will cease to exist in 2025. The trustees found that the Part A trust fund will be able to cover 100 percent of the costs of Medicare’s Part A benefits through 2024. After 2024, the trust fund will still be able to provide coverage, though at a lesser rate. According to the Center on Budget and Policy Priorities (CBPP), starting in 2025, Medicare will still be able to cover 87 percent of all inpatient costs, and over the next 75 years, the trust fund, on average, will be able to cover 74 percent of Medicare’s inpatient costs. A number of factors can affect the Medicare Part A trust fund. For example, since the trust fund is partially paid for through payroll taxes, an economic downturn could result in less people paying into the system. As the economy recovers, so will the trust fund.
Medicare Part B, which covers outpatient services such as visits to doctors’ offices, and Medicare Part D, which covers prescription drugs, are financed through beneficiary premiums and general revenues, not through the trust fund.
While action will need to be taken to make up for the future financing shortfalls of Medicare Part A after 2024, it is important to recall that congress has been taking this kind of action since 1970 to extend the life of the trust fund to ensure that people with Medicare are able to access affordable, comprehensive and quality coverage. Unfortunately, supporters of drastic changes to Medicare, such as premium support, point to the potential insolvency of the trust fund to justify proposals that would shift substantially higher out of pocket costs onto beneficiaries and their families as well as undermine the consumer protections and guaranteed benefits that the Medicare program currently provides. Strengthening the Medicare trust fund can be done without gutting Medicare’s guarantees.
Read Medicare Rights President Joe Baker’s statement on the release of the 2012 Medicare and Social Security Trustees Report.
Read the Center on Budget and Policy Priorities report, “Medicare is not Bankrupt.”
Read the Center for Medicare and Medicare Services press release and Trustees Report
New Report Examines Quality Bonuses to Three Star Medicare Private Plans
In a new report, the Government Accountability Office (GAO) questioned the appropriateness of providing quality bonus payments to private Medicare health plans, known as Medicare Advantage (MA) plans, with less than four stars. MA plan quality is measured by star ratings that reflect both medical and consumer experiences, including the quality of customer service, member satisfaction and health outcomes.
The Affordable Care Act (ACA) implemented a policy where MA plans are rewarded based on the quality of the care and coverage they provide. Before the passage of the ACA, Medicare paid MA plans 9 percent more per enrollee than it costs to provide care for the same person under Original Medicare. The ACA slowly eliminates these overpayments and implements quality bonus payments that reward plans with high quality ratings. Initially, the bonus payments were to be provided only to four and five star plans; however, in 2010, the Centers for Medicare & Medicaid Services (CMS) announced a new demonstration that would award bonus payments to plans with three stars or higher. The demonstration also increased the size of bonus payments for four and five star plans in 2012 and 2013. The vast majority of MA plans have ratings of three stars or higher and according to the CMS scale, three stars means that a plan is “average.” The demonstration, which is estimated to cost about $8 billion, ends in 2014, at which point MA plans will be subject to the bonus payment structure originally set up in the ACA.
While the Medicare Rights Center has expressed concerns to CMS about rewarding plans that are considered average, Medicare Rights does support eliminating overpayments to MA plans as a way to strengthen Medicare’s finances and the use of payments based on quality as an effort to create a more efficient system.
Read the GAO report.
Medigaps are supplemental coverage designed to fill the gaps of Original Medicare. They can help cover Original Medicare deductible and coinsurances, and they may provide additional benefits, including an additional 365 lifetime days of full hospital coverage. All states must give people with Medicare, at a minimum, the right to purchase a Medigap under the conditions stated by federal law. A few states, like New York and Connecticut, offer much broader protections.
It is important to know when you have the right to buy a Medigap policy in your state. If you miss your window of opportunity, your costs may go up, your options may be limited and you may not be able to buy a Medigap at all. When you have the right to buy a Medigap policy, an insurance company cannot deny you Medigap coverage or charge you more for a policy because of past or present health problems.
In most states, your rights to buy a Medigap vary greatly depending on whether you are under 65 or at least 65.
For exact rules and protections in your state, contact your State Health Insurance Assistance Program (SHIP) or your state’s Department of Insurance.
Learn more about your right to buy a Medigap policy at http://www.medicareinteractive.org/.
Nearly 10 million Americans are caregivers for their aging parents, reports a new series by NPR, “Family Matters: The Money Squeeze.” “Family Matters” examines the lives of three intergenerational households, and in particular, those of the “sandwich generation”—adults caring—and paying—for both their parents and children. Throughout the series, NPR discusses the importance of preparing for the possibility that aging parents will require long-term care.
Read NPR’s series.