CBO Pushes Medicare Insolvency Back Another Year

Medicare Set-Aside Blog on February 24, 2012
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The Congressional Budget Office recently issued its annual Budget and Economic Outlook report, noting a significant reduction in Medicare spending over the next decade. The report predicts Medicare spending will shrink by $69 billion over the decade compared to prior estimates, while the growth of Medicare spending per beneficiary is estimated to be only 1% more than the inflation rate. However, other financial uncertainties loom with the repeal of the SRG formula which froze rates at the 2011 level (this could cost the program an additional $316 billion over the next 10 years) as well as a 27% physician payment cut scheduled to start March 1st that is likely to be cancelled by a Congressional budget fix already in the works.

All in all, the Medicare HI Fund ended 2011 with a balance of $246 billion, brought in $219 billion in primarily the Medicare payroll tax and an additional $13 billion in interest income. Non-interest income is projected to increase from $230 billion in 2012 to $417 billion in 2022, in part due to the 2013 increase in the payroll tax on certain high wage earners from 2.9% to 3.8%. Annual expenditures are projected to grow from $268 billion in 2012 to $444 billion in 2022, so with expenditures expected to outstrip income by $24 to $30 billion annually throughout the decade, under the current law, the CBO projects the HI trust fund will be exhausted in 2022, which is a one year improvement over its report last year. Of course that is still two years sooner than the Trustees reported last May so who is to say for sure.

What we do know is that with the ongoing issue of insolvency looming, Medicare will continue to seek other ways of reducing its spending – enforcement of its MSP exclusion remains an easy means to accomplish that task.

To view the full report:  http://www.cbo.gov/sites/default/files/cbofiles/attachments/01-31-2012_Outlook.pdf