Medicares longterm fiscal conditions. This is an hour and 45 minutes. Everyone. Rning everyone here and everyone on cspan to the American Enterprise institute. Were having a discussion today about the Medicare Trustees report, the report was issued late yesterday afternoon, and is an annual report that gives some indication of not only the current fiscal status of the Medicare Program but also the longterm outlook. My name is joe antos. And i will be introducing the panel in just a second. I did want to highlight a few things that the trustees said in their report. The perhaps their biggest concern has to do with the outlook, as they said in their summary. A major concern has to do with the growth of health care innovation, which has its positives and negatives. The positives, of course, is with modern technology and modern techniques were able to cure or address the Serious Health conditions of many more people than we could have in the past, but as the trustees say, while most healthcare technological advances to today have tended to increase expenditure this health care he can landscape is shifting no one knows whether future developments will increase or decrease costs. That could be but one might take a more realistic view of that in my opinion. Let me also cite a critical point that the trustees made in their report, having to do with productivity, the Patient Protection and Affordable Care act or the aca, has a provision in it that the Current Administration is not taking any actions to remove, which sets payment reductions dooring to the growth and general productivity and payment reductions to Healthcare Providers, and as the trustees say, Healthcare Providers will have to realize productivity improvements as a faster raise than experienced historically for this policy to avoid leading to serious erosion in the access to care and quality of care. Very serious issues, and then finally let me cite the i like to think of them as the Public Trustees in exile. Former trustees who wrote a paper before they saw the report yesterday but made a very important point, which is that delaying action on medicare fiscal challenges, until a crisis is imminent, which too often has been congress approach, would not only have adverse impacts on beneficiaries but would severely restrict the remedies available to address the problem. Waiting to act could have devastating consequences. So with those upbeat words, let me introduce the panel. Our first speaker is the chief actuary for the medicare and Medicaid Program, paul spitalnic, and then after paul gives his talk the panel will make comments and well have general discussion and open it up to the audience. The next speaker is Maya Macguineas on the commit for a responsible federal budget. Then theres gene sterling, an Institute Fellow at the urban institute. Then we have bob moffet, a surgeon fellow a senior fellow at heritage foundation, and then finally keith fontanel who is a managing director at hooper, lindsey and buckman but has long experience at the office of management and budget and other related organizations. With that, paul, please give your presentation. All right. Good morning. I always appreciate the opportunity to come to the American Enterprise institute and talk about the financial status of medicare after we released the annual Trustees Reports. In the interest of bearing the lead but this years report is not very different than what we have seen in prior years. But that in and of itself is actually a pretty big story. That we have a very different the current members of the board of trustees are from very different perspective on health care than the prior administration. The members of the board of trustees are theres three cabinet officials, the secretary of health and human services, the secretary of the treasury, the secretary of labor, the commissioner of Social Security, and then theirs also typically two Public Trustees who play a very Important Role and that position has been vacant over the last couple of years as well. But the fact remains that in a shifting administration, with very different perspectives towards health care as evidenced from the debate on the the Current Health reform efforts, the fact that the underlying approach, the assumptions, the methods, and ultimately the results of what were going to see as i walk through the key findings from the report, are not very different. I think that really is a testament to both the current and the prior administrations for the role that the board of trustees play in overseeing these very important programs. And that they are free of political perspective or bent, that they are truly an independent, objective evaluation of the status of these trust funds and that of itself is a pretty important observation and reality. So with that ill turn to my presentation. Ill walk through the agenda is going to be walking through the current status on the evolution of the program, walk through the formal evaluation of the financial status of the programs, which is the key objective of the trustee report, the independent payment and Advisory Board or ipab is something that could have garnered a fair amount of attention this year. Again, to not bear the lead, it was not triggered this year so therefore not getting a significant amount of attention. What has got an fair amount of attention has been the part b premium rate. Ill talk about the evolution of where we are today and what the 2018 part b premium, and ill summarize for those that have seen my presentation before, first i apologize. Its fairly similar to what its been in years past but i have added what hopefully will continue to eliminate how these programs are evolving and changing over time, and hopefully in a way that you can actually visualize that these are big programs that move relatively slowly, but even when they move relatively slowly there can be some substantial changes over short period of time. Like to start my presentings always by putting up this these comparisons. This is a comparison of the split between how the program has evolved, basically how spending by medicare has changed over time. Each and every year board of trustees put out the report that have a 75 year projection. So what we are trying to do is forecast what this program will look like, what the spending will be, 75 years from now. And if we were to jump back to just 1976 just moved back 40 years and look at what the program looked like at that point, where this was predominantly an inpatient hospital program, nearly 75 more than twothirds of the spending was for inpatient hospital in 1976. As compared to what looks like today, and this theres a lot more pieces to that pie and clearly those the program is a lot more than just inpatient hospital. It they should be much bigger over time. You can see growing from just under one percent of gdp in 1976 to more than 31 2 percentage of gdp in 2016. Well talk about continued growth in gdp in a little while but just like to start with this as demonstration for although it would have been impossible in 1976 to forecast that construction of that pie 40 years down the road, it still actually very important to measure and estimate and evaluate what the anticipated affects are of current program. Obama is the reason why this pie looks different is because las vegas the legislation has changed and will evolve and will town to do so. Stopping annually and evaluating the current financial status is actually a pretty important process. One of the reasons why we have seen these changes is this very large change in shifts towards private plans. This is really looking at Medicare Advantage, penetration rates over rough lay 25year period. You can see that the rate of managed care takeup has been growing very steadily growing very steadily and forecast to be even more so. This is a lot of detail on it. This kind of high lights when were talking about medicare there or two separate and distinct trust funds and separate and distinct benefits just within the medical portion of the program. The hi Hospital InsuranceProgram Provides mostly inpatient hospital care, and other Skilled Nursing home, hoss nursing home, hospice care insurance. The part b which has the Physician Services outpatient, home health, but also has the part b account. One reason why its important to keep the programs separate or to evaluate them separately is that the financing is extremely different between the two. The source of financing for hi is payroll taxes. Theres the amounts are included in a trust fund. And theres no authority to provide benefits to the extent there is insufficient Funds Available in that trust fund. Well get most attention each and every year in response to the report is the data depletion of that trust fend. Well talk about nat in a little bit. Thats not very far off into the future in this years report. Its 2029. As compared to on the Supplementary Medical Insurance side those are financed via general revenue transfers and beneficiary premiums. Those financing rates are seton an annual basis so they are effectively always in financial balance, and so when evaluating the status of those programs, its more important, the fact theyre always in financial balance is important to consider the other impacts of such spending, such as share of gdp, share of federal income taxes, proportion of individuals Social Security checks and all those things are captured within the report. So, the foundation of the projection always startled with evaluating the new experience and so this is a comparison of the 2017 the projects of 2016 medicare experience between the 2017 report and the 2016 report. The income is generally forecast projected by our counterparts in the Social Security administration, and generally subject to less variation than of the expenditures. 2016 was a goodyear to be an actuary a good year to be an actuary. It is pretty remarkable to see differences in expenditures as small as these. The fact that expenditures on hi were 1. 7 billion lower than expected, still good news, but on part b side, were almost exactly aligned, 0. 3 billion higher than expected. On the part d side the expend it tours were somewhat lower. Ill talk about that but generally theres been some more favorable experience on the part d side after years a couple of years of higher costs associated with in particular specialty drugs, those that treat hepatitis c. This looks at the income and expenditures. Kind of builds up from the payroll taxes. Payroll taxes are set in statute to be 2. 9 that are of payroll, of income, and that amount is fixed in law. The 2. 9 is split between employees and their employers, selfemployed pay both portions. Theres also an additional opt of. 9 that are paid by high income earners, those over with incomes over 200,000individually or 250,000 joint filers. That has got summon attention recently. Theres also a tax on Social Security benefits that reflect a portion of the income that goes into the Hi Trust Fund, and then building up theres the premiums, which are generally a large portion of both the part b and Part D Program. Theres some state transfers and drug fees that mostly go into part d. The general revenue transfers, thats the federal matching on part b and the contributions on the Part D Program, and that line up top, the gap between those buildup and the total expected accident did tours, which expend did toward which max out at 5. 9 of gdp. That the gap there is the deficit. And that is the amount of expected expenditures that programs would be making, most notably for hi after the deficit reflects the amount the gap between the spending from current sources of revenue versus what would be available in trust fund. And so thats the deficit that would need to be made up in order to pay full benefits for all assumptions realized and well talk more about that. The formal status of the trust has to evaluate both the h and i the sni funds separately. The key questions to answer on the hi are assets plus protected income, assets expected been fit cost and on the smi side, the fact that there are annual for part b and part d, no longterm solvency issues but others that are informative. Well also note that the injections in the report are that the projections in the report are mostly on a current law basis, and there are some potential aspects of current lieu that might prove problematic to maintain indefinitely into the future. These are 75year projections and the two in particular ill note are, one, the productivity costs with the Affordable Care act, and that basically at the payment updates for most nonphysician providers will be reduced by economywide productivity. The issue here is that product different that can be achieved that productivity that can be achieved in the Health Sector has historically less than what can be achieved in the economy more broadly to the extent that providers cant keep up with those payment reductions, the expectation is that there might have to be either reductions in access to care or quality or care or some other changes that would account for that gap. Again, thats only if the payment the providers cant transition to become that higher level of productivity. For physician updates, the passed two years ago specified all price updates for physicians in all future years, and so theres the transition period until we get to the point where either physicians are in these apms or alternative thank you for at that time or in the meritbased incentive payment systems, and once they are there, all of the updates are at are specified in law, and these payment rate update so the prices they price increases that physicians will receiver set to be. 75 in theyve in alternative Payment Methods or in. 25 in the program. Those rates are specified and they will be constant regardless of whether underlying costs for Physician Services are increasing at a faster rate. We anticipate that the underlying costs as measured by medical economic index for physicians is closer to 2. 2 , and that gap between what we think underlying physician costs are going at, versus what the payment rates will be updated by will become a concern over time. So while there might be some main efficiencies that could be wrung out of the system over a period of time, were concerned that over a long period of time they could be could prove to be problematic. In response to those potential concerns the trustees have presented a see anywheror that demonstrate the potential understatement in current law to the extent the provision does not continue indefinitely into the future. So there is the productivity transitions that transition to what would be experienced in Health Sector, physician updates are helping to transition to the mei, and the independent payment Advisory Board, i pab provisions are not implemented. Those are what presented in this illustrative alternative scenario, which is included in of and reverenced in the report as a potential referenced in be report as potential understatement of the current law cost tuesday to the extend they cannot be realized in the future. So turning to the rules of the reportthe results of the report you can see the Hi Trust Fund ratio, comparison of assets at the beginning of the year to the percentage of annual expend did tours, the objective is the short range objective goal is to achieve 100 for all years. You can see that we are clearly below that level today and we are projected to actually become depleted in 2029 this year. We have lower 2016 expend did tours and reduced trend rates for inpatient hospital and the very short term. You can summarize the status in terms of an actuarial balance which looks at the present value of income rate so all the dollars going into the program less the cost rate all the dollars going out for benefits and other expenses compared to taxable payroll, the basically which income is generate and you can see the income rate rarely changes from year to year and there was this slight improvement in the cost rate. As a result, the actuarial balance has improved and less of a deficit this year so effectively thatsing a waral deficit of. 64 means if the current payroll tacks of 2. 9 if those were increased immediately today in 2017 to 3 54 the trust fund would be in financial balance for over 75 years. 3. 54 . So, onthis is more interesting when there are bigger changes. You can see that there are not many differences. This is basically just a walkthrough of what the differences are between that deficit from 2016 report and the 2017 report, and you can see that the largest contributor here is the hospital assumptions. So the. 8 . So looking at the longrange heres the annual representation of what is happening on both the human being and the cost rate. A couple of things to note here, that you can see in 2029 that basically theyre the line that drops from the cost rate down to the income rate. That represents that when assets are depleted the only amounts of Funds Available are the amounts that are actually coming in, into the fund. So, in 2029 we estimate that income would represent 88 of the needed funds to provide benefits. You can see over time that those ratios change over time, but its roughly in those midtoupper 80s. You also see that the cost rate kind of bounces actually gets closer to the income rate over time and then kind of stays level there, and thats part