Securing Medicare

Don Berwick, M.D., Administrator of the centers for Medicare and Medicaid Services

I am pleased today to bring good news to you about the health and future of Medicare.  As a result of the Patient Protection and Affordable Care Act, as amended, the financial outlook for Medicare is substantially improved compared to prior evaluations.  This improvement is not without some important qualifications, but it nonetheless represents a very positive change in the expected operations of the Medicare trust funds.

In 2009, Medicare provided health insurance coverage to 46.3 million people.  Total Medicare expenditures were $509 billion and income was $508 billion.  The average Medicare benefit per enrollee was $11,743.  These Medicare expenditures were slightly lower than estimated in last year’s Trustees Report.  Within the total, Part A and Part D spending were each slightly lower than estimated, while Part B outlays were slightly higher. Medicare expenditures in 2009 represented 3.5 percent of Gross Domestic Product.  Last year, these costs were projected to increase steadily (and rapidly) to over 11 percent of GDP by the end of the long-range, 75-year projection period.  In the new report, based on the cost-containment efforts of the Affordable Care Act, Medicare is projected to represent 6.4 percent of GDP in 2084.

Other good news?  The Hospital Insurance (Part A) trust fund is projected to be able to pay all benefits on time until 2029—12 years longer than last year’s estimate of 2017.  And the long-range actuarial deficit for HI is only one-sixth of its prior level—specifically, 0.66 percent of taxable payroll versus 3.88 percent.

These favorable changes depend critically on a specific ACA provision, which will slow the rate of growth in Medicare payments to most categories of providers by about 1.1 percent annually in anticipation of improvement in productivity.  It is important to note that the effect of these adjustments will reduce payment rates over time, and it is possible that providers would not be able to slow their cost growth correspondingly.

However, as someone who has spent my career improving care for patients, I have seen firsthand the substantial improvements in quality and cost-effectiveness that can be achieved by health care providers.  As a result of this provision, providers will have strong financial incentives and many other supports to find more efficient ways to care for patients that not only reduce costs but more importantly improve quality.

Our agency intends to work with providers to support these improvements and carefully monitor the impact of this provision on access to high quality care for all beneficiaries. Despite the uncertanties, the picture is far more positive than last year – with the Affordable Care Act, we can make the future of Medicare secure.