Friday Report Demonstrates Need for Medicare Reform NOW

On Friday, the Medicare office of the actuary released its alternative scenario to last month’s official trustees report.  The alternative scenario has been released every year since Obamacare was enacted in 2010.  According to the non-partisan actuary, the alternative scenario presents a more realistic projection of future Medicare spending levels because several key provisions in current law are not likely to be implemented – notably the 31 percent reduction in Medicare physician fees scheduled to take effect in January, and many of the major spending reductions in Obamacare, which the actuary (and most independent experts he consulted with) believes cannot be sustained over the long term.

As in prior years, the alternative scenario demonstrates how low payment levels will fall if Obamacare’s scheduled payment reductions take effect.  As many as 40 percent of all providers will become unprofitable by 2050, causing them to go out of business or stop treating Medicare patients.  And Medicare payment rates will plummet to about one-third the levels provided by private health insurance – levels so low they would likely convert Medicare into a second-tier form of health insurance with poor access to care.

This year’s alternative scenario includes a new section highlighting the unrealistic nature of the spending reductions called for by Obamacare’s Independent Payment Advisory Board (IPAB).  The IPAB is a board of unelected and unaccountable bureaucrats empowered to make binding rulings on how to keep Medicare spending below arbitrary, pre-set levels.  The actuary’s report indicates that imposing the IPAB’s scheduled cost reductions “would be quite challenging” – suggesting that this board could impose arbitrary cuts impeding access to care.

As noted in the chart below, Medicare’s 75-year shortfall is nearly 40 percent greater under the alternative scenario – $36.9 trillion, versus $26.4 trillion under a current-law model.  Under the alternative scenario, by 2080 Medicare alone will consume nearly one-tenth of American GDP, as opposed to 6.7% under the current-law model.

As we previously reported, the Medicare trustees report itself presents a bad enough picture about the unsustainable nature of America’s fiscal entitlements.  Friday’s release of the alternative scenario provides further support for reforming entitlements NOW – because even the best-case fiscal scenarios, as bad as they are, are likely far too optimistic.


Unfunded Obligation Projections for 75-Year Budget Window (2012-2086)

  2009 Trustees’ Report pre-Obamacare

(in trillions)

2011 Trustees’ Report (in trillions) 2011 Alternative Scenario (in trillions) 2012 Trustees’ Report (in trillions) 2012 Alternative Scenario (in trillions)
Part A (Hospital Insurance) $13.4 (1.7% of GDP) $3.0 (0.3% of GDP) $8.3 (0.9% of GDP) $5.3 (0.6% of GDP) $9.7 (1.1% of GDP)
Part B (Obligations less beneficiary premiums) $17.2 (2.2% of GDP) $13.9 (1.6% of GDP) $21.0 (2.4% of GDP) $14.8 (1.6% of GDP) $20.5 (2.3% of GDP)
Part D (Obligations less beneficiary premiums and state “clawback” payments) $7.2 (0.9% of GDP) $7.5 (0.8% of GDP) $7.5 (0.8% of GDP) $6.8 (0.7% of GDP) $6.8 (0.7% of GDP)
TOTAL $37.8 (4.8% of GDP) $24.4 (2.8% of GDP) $36.8 (4.2% of GDP) $26.4 (2.9% of GDP) $36.9 (4.1% of GDP)