Medicare expenditures continue to grow

Sunday, May 6, 2007

WASHINGTON - Medicare expenses totalled 3.1% of the gross domestic product in 2006, and they're expected to hit more than 11% of the GDP in 75 years, according to a report released April 23 by the Medicare Trustees.

Also in the report:

* Part B benefit payments have increased by an average of 10.7% annually over the past five years, driven largely by outpatient hospital, DME and other spending. The trustees emphasize that actual Part B costs are likely to exceed the current-law projections, because they expect Congress will continue to override an existing provision that would otherwise require substantial reductions in Medicare payments to physicians over the next 10 years.

* Trustees expect to exhaust Medicare's Hospital Insurance Trust Fund in 2019, one year later than estimated in last year's report. The change results from slightly higher projected income and slightly lower projected expenses than shown in last year's report. The trustees expect hospital insurance spending to increase an average of 7.2% per year over the next 10 years.

* Due to continued rapid growth in expenses for the program, as a whole, the trustees expect costs financed by general revenues, rather than by "dedicated revenues," to exceed 45% in 2013.

Last year and this year, the trustees have issued a determination of "excess general revenue Medicare funding," triggering a "Medicare funding warning." The warning requires President Bush to respond with legislation within 15 days following the release of his FY2009 budget (early February 2008). The warning indicates that federal funding for Medicare is an important concern, but it does not signify that program benefits can't be paid.

"This report shows once again that we are on an unsustainable course for Medicare spending," said trustee Mike Leavitt, secretary of the Department of Health and Human Services. "If Congress were to embrace the president's budget, we could not only eliminate this funding warning, we could also extend the life of the Hospital Insurance Trust Fund four years."

There was an element of good news in the report: the prescription drug benefit under Medicare Part D. The latest cost projections for Part D through 2015 are 13% lower than estimated in last year's report. Plan bids for 2007 were 10% lower than in 2006, thanks to "intense" competition among plans to attract and retain enrollees and use of inexpensive generic drugs. Additionally, prescription drug costs have increased much more slowly in 2004-06 than in prior years.