Federal officials conflict on state of Medicare fund

WASHINGTON -- Medicare is in better shape because of President Barack Obama's sweeping health care overhaul and the hospital fund for elderly Americans will stay afloat a dozen years longer than earlier forecast, the government said Thursday. But that depends on the program achieving big cost-cutting savings that even a top Medicare expert calls highly doubtful.

In what amounted to a dissenting opinion, Medicare chief actuary Richard Foster warned that a report's financial projections "do not represent a reasonable expectation."

The conflicting renderings by federal officials centered on the annual report of the trustees for Medicare and Social Security, released Thursday. It found that the Medicare Hospital trust fund will not be exhausted until 2029, a dozen years longer than estimated last year.

The recession, however, has worsened the near-term outlook for the Social Security Trust Fund, the report said.

The trustees said the Social Security program is projected to pay out more in benefits than it collects in taxes for the first time this year and next year. The Social Security trust fund is expected to be exhausted in 2037, the same date as in last year's report.

The report noted that achieving the health care savings needed to extend the life of the Medicare trust fund "may prove difficult and will probably require that payment and health care delivery systems be made more efficient than they are currently." The trustees also said that their projections "should be interpreted cautiously."

Foster said in a statement included in the report that the Medicare savings might not be realistic.

He said the projections were based on current law, which calls for payments to doctors to be cut by 23 percent this December and by a combined 30 percent over the next three years, an outcome that Foster called "an implausible result."

Congress has for years voted to put more money in the Medicare program to keep such sharp cuts in doctor's payments from occurring.

Foster said the report also makes overly optimistic assumptions about the amount of savings that hospitals and other major providers will be able to achieve by operating more efficiently.

"For these reasons, the financial projections shown in the report for Medicare do not represent a reasonable expectation for actual program operations in either the short range ... or the long range," Foster wrote.

The administration delayed issuance of the trustees report, which normally comes out in the spring, in order to recalculate projected spending estimates based on the changes the new health care law brought about or will bring about in the future.

Treasury Secretary Timothy Geithner, the head of the trustees panel, said that while the new report showed "very positive developments" from the new health care law it also underscored "that we must continue to make progress addressing the financing challenges" facing both Medicare and Social Security.

The trustees report said that Social Security pension and disability payments will exceed revenue for this year and 2011, reflecting a deep recession which has knocked millions of people off payrolls, which means they are not paying Social Security payroll taxes.

The report said the program would return to the black in 2012 through 2014 but that benefit payments will again exceed tax collections in 2015. For every year after 2015, the report projects that Social Security will be paying out more than it receives in tax collections under the impact of the retirements of 78 million baby boomers.

The government will then have to turn permanently to its trust fund to make up the difference between Social Security taxes and the benefits being paid out. The trust fund, which exists in paper form in a filing cabinet in Parkersburg, W.Va., are bonds backed by the government's "full faith and credit" but not by any actual assets. That trust fund, currently at $2.5 trillion, has been spent over the years to fund other parts of government.

To redeem the trust fund bonds, the government will have to borrow in public debt markets or raise taxes. At the point that the trust fund is exhausted in 2037, the trustees said the government will still be collecting enough in Social Security payroll taxes to meet three-fourths of current benefit levels.

The number crunching and analysis for the trustees report is done by a group of nonpartisan professionals at the Office of the Actuary, an obscure economic unit in the Health and Human Services Department that has a reputation for independence. To the consternation of White House officials, recent reports from that office have raised questions about the heath care law's impact on Medicare.

An April 22 analysis pointed out that the projected gain of 12 years of additional solvency for Medicare, a figure that was also used in the health care debate, was largely an "appearance," stemming from how Medicare cuts are handled under federal accounting rules. Under the law, savings from those cuts will be used to finance coverage for the uninsured.

A companion report concluded that some of the $575 billion in Medicare savings over 10 years "may be unrealistic" because future Congresses could be pressured to roll back cuts to providers in the health care law.

More than 53 million people receive Social Security. Retirement benefits average $1,100 a month, and disabled workers get an average of $1,065. Medicare covers more than 46 million retirees and disabled people.

Social Security is financed by a 6.2 percent payroll tax on wages below $106,800. The tax is paid by workers and matched by employers. Medicare is financed by a mix of general revenue, payroll taxes and premiums paid by beneficiaries.

President Barack Obama has formed a bipartisan fiscal commission that is working on recommendations to improve government finances, including those for Social Security and Medicare. Seniors' groups are lobbying against benefit cuts, while conservatives say they will oppose tax increases, creating a difficult political environment for compromise.