The Wall Street Journal’s lead op-ed “Richard Foster for President” (op-ed Aug. 9) states that “Medicare’s unfunded 75-year liability has fallen to about $30.8 trillion from nearly $37 trillion in the previous audit.” As indicated in Table V.D2 of the 2010 Medicare Trustees Report, the new estimate of the unfunded liability is about $22.8 trillion, not $30.8 trillion.  The Journal’s $30.8 trillion figure apparently mistakenly includes the $7.9 trillion estimated unfunded liability for the social security retirement program (OASDI), whereas the $37 trillion figure from last year was for Medicare only.  Thus, the Trustees reported reduction in the Medicare deficit, although based on bogus assumptions, is about $14 trillion, not the $6.2 trillion reported in the WSJ op-ed.  This error notwithstanding, the main  thrust of the piece is “right on the money” and good reading.

The White House released a preemptive report last Monday touting the beneficial effects of the Patient Protection and Affordable Care Act (PPACA, a.k.a. “Obamacare”) on Medicare spending and deficits.  The report highlighted earlier projections by the CMS Office of the Actuary that the law will extend the projected insolvency date of the Medicare Hospital Insurance Trust Fund from 2017 to 2029, produce 10-year cost savings of $418 billion, and “lower beneficiaries’ Part B premiums by nearly $200 annually by 2019.”  Projected cuts in payment updates for hospitals and other providers present almost half ($205 billion) of the projected $418 billion savings.  Projected cuts in Medicare Advantage reimbursement ($146 billion) account for over a third.

The White House report preceded by four days the annual report by the Medicare Trustees on the program’s solvency.  The Trustees Report paints a bleak picture.  According to the Trustees, the present value of the projected Medicare “deficit” over the next 75 years is $22.8 trillion.  That amount, which is based on the Trustees’ intermediate assumptions about real interest rates, general inflation, Medicare spending growth, GDP growth, and population growth, includes the projected federal budget deficit for the Hospital Insurance (HI) program ($2.7 trillion) and the present values of projected general revenue transfers for Medicare Part B (physicians’ services, $12.9 trillion) and Medicare Part D (prescription drugs, $7.2 trillion).

Although significantly lower than the $37.8 trillion projected present-value deficit in the 2009 Trustees Report, a $22.5 trillion deficit is 1.5 times U.S. GDP, or about $116,000 per adult aged 18-64.  In comparison, the U.S. public debt is currently $13.3 trillion, about 90 percent of GDP, or $69,000 per adult aged 18-64.

To make matters worse, the Trustees (and CMS Office of the Actuary chief Richard Foster) indicate that the deficit estimates are substantially understated because reductions in physician payment rates under the Sustainable Growth Rate system, “totaling 30 percent over the next 3 years, are assumed to be implemented as required under current law, despite the virtual certainty that Congress will continue to override these latter reductions.”  The Trustees also caution that many experts believe the provider payment updates specified in the PPACA will not be sustainable and will likewise be overridden by Congress.  The Trustees specifically conclude that the projected reductions in hospital insurance payments “would probably not be viable indefinitely into the future and would likely result in HI payment rates that would eventually become inadequate to compensate providers for their costs of treating beneficiaries, with adverse implications for beneficiary access to care.”

A CMS Office of the Actuary analysis of more realistic updates in provider payments, released in conjunction with the Trustees Report, projects a 75-year deficit for the HI program equal to 1.91 percent of payroll, almost triple the 0.66 percent in the Trustees Report.  The analysis projects that Part B expenditures will grow (from 1.5 percent) to 5.1 percent of GDP over the next 75 years, more than double the 2.5 percent projected in the Trustees Report.

Even if the PPACA’s cuts in provider payment could be achieved, the Medicare deficit remains enormous.  In addition, and as emphasized by Obamacare’s critics, any Medicare savings from the law will be largely if not completely offset by spending on new health insurance entitlements in the form of expanded eligibility for Medicaid and premium subsidies for people with incomes up to 400 percent of poverty, and the law’s new taxes to help fund those entitlements will reduce the resources available for tackling future Medicare deficits.

The Democrats approach to closing the large gap between Medicare revenues and spending over time will surely involve higher taxes, a steady increase in government prescription of the amounts and types of spending and care provided to seniors, and, along with implementation of the PPACA, greater bureaucratic control of health spending for people of all ages.

That scenario is not yet inevitable.  In 2010 and 2012 the public could elect candidates to repeal Obamacare and replace it with targeted, market-oriented, consumer-directed reforms.  After that, the Congress could turn its attention to developing and enacting policies that would transform Medicare for people then under age 50 or 55.  The goal, as suggested by Congress Paul Ryan (R., WI) and others, should be a fiscally sustainable program that allows future retirees to use limited Medicare dollars to purchase a health plan that best meets their needs – while preserving patient/physician choice over treatment.