Medicare trustees say fund will run out in 2024

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The health insurance (HI) trust fund may not be adequately funded and may run out of funds in 2024, five years earlier than expected, according to an annual report composed by the board of Medicare trustees.

While HI taxable earnings estimates were lower than expected in 2010, the authors said that these earnings are expected to grow and surpass last year’s assumptions for 2011 to 2019. HI expenditures have exceeded income each year since 2008 and will do so until 2024, when the fund is expected to become “exhausted.”

According to the report, $32.3 billion in trust fund assets were redeemed to cover shortcomings in income that were relative to expenditures. Assets at the beginning of 2011 were $272 billion, but the authors expected that the asset balance fell below the recommended levels in early 2011, one earlier than last year’s report expected.

“The HI trust fund has not met the trustees’ formal test of short-range financial adequacy since 2003,” the report stated.

While the authors said that the Supplementary Medical Insurance (SMI) trust fund is adequately financed for the next 10 years because Part B and D incomes are reset annually, the authors said that Part B costs will continue to increase, and in fact have increased by an average of 6.9 percent annually over the last five years. A 4.7 percent annual growth rate is expected over the next five years; however, the trustees wrote that “this rate is unrealistically constrained due to a physician fee reduction of over 29 percent that would occur in 2012 under current law.”

In addition, the authors noted that if Congress overrides the reduction like it did between 2003 and 2011, the Part B growth rate would be 7.5 percent. Meanwhile, Part D expenditures are expected to be 9.7 percent through 2020. In comparison, the U.S. economy is expected to grow 5.2 percent annually, lower than both Part D and Part B estimates.

“The trust fund does not meet the test of long-range close actuarial balance,” the report stated.

“The financial projections in this report indicate a need for additional steps to address Medicare’s remaining financial challenges. Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be,” the authors concluded. “We believe that prompt action is necessary to address both the exhaustion of the HI trust fund and the anticipated excess growth in HI, SMI Part B and SMI Part D expenditures.”