Between the crises in the Middle East and Ukraine and the outbreak of Ebola in West Africa, it's difficult to get domestic news on the front page this week, let alone good news. But the improved finances of Medicare deserve the public's attention, particularly given that the much-maligned Affordable Care Act is involved.
Here's the bottom line: Medicare paid out less in hospital benefits last year than it did the year before. This is a fantastic development because, according to projections contained in an annual report released Monday, it means that Medicare will have enough money to continue paying for the hospital care of the elderly and disabled through 2030, which is four years longer than the federal government estimated for the program just last year.
The report is not all good, of course. Social Security's overall finances have not improved, and that means the fund that pays disability benefits could run short of money in 2016. That's troubling, but a short-term fix is relatively simple — just alter the percentage of existing payroll taxes that go toward disability payments versus retirement benefits. Should those funds be pooled, both will have enough to keep going into 2033.
Obviously, neither Medicare nor Social Security is on sound financial footing in the long term, but by current Washington standards, 16 years or more of solvency isn't bad. For either program, there are still real choices to be made about whether to raise premiums or reduce benefits, and the sooner the better to lessen the impact on retirees.
But the more important question is how did Medicare's outlook improve so much so quickly? Medicare's trustees say they aren't certain why spending on hospital care fell and are continuing to analyze the data. But the overall slowdown in health care costs is generally credited not only to a relatively stagnant economy but to the ACA, which reduced certain Medicare payments and encouraged alternatives to hospitalization.
It's also notable that the reductions took place despite the fact that Congress overrode further cuts to Medicare physician payments — a choice that's happened so frequently now that Medicare's bean counters assume the practice will continue. But they also calculate that the slowdown in the rising of hospital costs is not going to continue much longer.
Administration officials were quick to acknowledge that the Affordable Care Act played a role in slowing health care costs at a news conference this week, but one wonders if the general public is catching on. As recently as 2009, Medicare was supposed to run dry by 2017, yet the latest polls suggest a majority of Americans have an unfavorable view of Obamacare, a position that is little changed despite other favorable trends like the decline in uninsured Americans and reductions in health insurance premiums.
The challenges facing both Medicare and Social Security are well-documented and widely understood by members of Congress. It's not unlike running any insurance program — the solution is either to reduce benefits or raise premiums. The most sensible proposals would modestly address both and have little impact on those in retirement or nearing retirement. Slowing the rise of hospital-related costs has been helpful but so might greater means-testing for Medicare benefits for the generation that doesn't turn 65 for another decade, for instance.
It's certainly been done before. But somehow we doubt Treasury Secretary Jack Lew's call for Congress to reach a bipartisan consensus for reforms will be heeded. Even the most sensible reforms — such as recalculating the way Social Security factors in inflation — raise a storm of protests from those who see themselves shortchanged.
The underlying problem is one of Baby Boomer demographics, increased longevity and costly medical advances. Given these factors, none of which could have been accurately forecast in 1965 when Medicare was signed into law, it's perfectly reasonable to make adjustments to ensure the program remains on sound financial footing.
The same applies to Social Security, which currently runs a $32 billion annual surplus yet faces major challenges as those Boomers retire in greater numbers. Should Congress do nothing, this much is certain: Benefits to all will have to be reduced. Continued inaction in Washington is what Americans should be protesting — and loudly.
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