HHS Secretary Sebelius: Medicare is #doingjustfine

You can’t make this stuff up, folks. Remember when candidate Obama mocked Sen. McCain for saying “the fundamentals of our economy are strong?”

You’d think for all the criticism President Obama (rightly) was given for saying in a press conference last week that “the private sector is doing just fine” that press flacks across the administration would pressure its principals not to make hasty and broad generalizations about the economy and health of government finances or its programs.

Apparently, Kathleen Sebelius did not get that memo. The Hill reports that yesterday, the Health and Human Services Secretary remarked that Medicare is “stronger than ever.”

Medicare has two trust funds — HI and SMI — Hospital Insurance (HI) and  Supplementary Medical Insurance (SMI). Hospital Insurance pretty much funds what it sounds like: hospital care, home health, skilled nursing, and hospice care. Supplementary Medical Insurance funds things like physicians, outpatient care and Part D prescription drug expenses.

Here’s the rub:

The Hospital Insurance Trust Fund is set to run out of money in 2024. 

Source: 2012 Trustees Report | http://www.ssa.gov/oact/trsum/index.html

(Social Security disability insurance will run out of money by the end of this decade, and OASI — what we know as social security — will run out of money in 2035.)

SMI is a different beast, since it is more difficult to predict cost wise and it is funded differently than HI.

From this year’s annual report from CMS:

The financial outlook for SMI is fundamentally different than for HI due to the statutory differences in the methods of financing for these two components of Medicare. The Trustees project that both the Part B and Part D accounts of the SMI trust fund will remain in financial balance for all future years because beneficiary premiums and general revenue transfers will be set at a level to meet expected costs each year.

This is a political way of saying that “we think it will be fine since we just plan to pay the higher costs as they come in the form of higher premiums and will pour more taxpayer cash — “general revenue transfers” — into the program.

However, projected SMI costs double as a share of GDP over the next 75 years, from 2.0 percent to 4.0 percent. This projection assumes a reduction of almost 31 percent in payment rates for physician services in 2013, as required under current law; lawmakers act to prevent this decrease, as they have for 2003 through 2012, then actual Part B and total SMI costs will significantly exceed the projections shown in this report.

So, costs as a percentage of GDP are going to double, but that’s cool, because we assume Congress will let doctors do the same things for 31 percent less. But if they don’t do that, and pass the “doc fix” costs are going to skyrocket.

And here we have Secretary Sebelius is saying Medicare is “stronger than ever.”

Former CBO Director Douglas Holtz-Eakin writes that, in 2011, Medicare “ran a $288.3 billion cash shortfall.”

Scary! Except that Medicare has pretty much always been a loser, having “run cash deficits every year except 1966 and 1974” since its creation in 1965.

Sebelius’s outrageous (at least to wonks) gaffe is just part of the ruse. Medicare was structured in a way where it is continually insolvent. I have no doubt that government accountants and staffers knew the demographics back then, but just did it anyway.

No worry, though. Medicare is “stronger than ever.” Thanks for making that clear, Secretary Sebelius. 

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