May 16, 2011

Medicare Trust Fund Going Belly-up!

By

jmanziSo, think you're getting older? The Social Security and Medicare programs think so. Beginning this year, the oldest of 78 million baby boomers born from 1946 through 1964 will begin celebrating their 65th birthdays.

 

These boomers number almost twice as many as the 39.2 million enrollees to receive Medicare-age benefits in 2010. Combining this dynamic with the worst recession since the Great Depression, it's no wonder the board of trustees of the Federal Hospital Insurance and Supplementary Medical Insurance Funds just announced in their annual report that Social Security and Medicare are running out of money earlier than projected.

Full Social Security benefit payments are on track to expire one year earlier than expected, 2036 rather than 2037, while the projected expiration of full payments from the Medicare Part A trust fund has been moved up five years, from 2029 to 2024. For the Medicare fund this change represents a 28 percent decline over what was projected for 2010.

 

Medicare Part A

 

The aforementioned board includes six members who annually must report to Congress about the financial and actuarial status of the Medicare HI and SMI trust funds. The Medicare HI fund, or hospital insurance, commonly is referred to as the Part A program while the SMI, or supplemental medical insurance, is Medicare Parts B and D. Medicare Part A helps pay for hospital, home health, skilled nursing facility and hospice care for both the aged and disabled. Part B helps pay for physician and outpatient hospital services while Part D provides subsidized access to drug coverage.

 

These funds are not expected to run out of money completely by the aforementioned years, but rather would start to pay 75 percent of current benefits. This year marked the board's 46th annual report submitted to Congress. The committee mentioned that the recently passed Patient Protection and Affordable Care Act is expected to help minimize some of the Medicare fund deficiency.

 

The panel members also noted the difficulty in developing projections based on legislation containing 165 provisions affecting the Medicare program, not to mention any possible impact of future legislation due to potential change in the political makeup of Congress or the White House. The trustees are obligated to make these projections based solely on current law.

 

$37 Billion Drop

 

Both the HI and SMI trust funds had a drop of almost $37 billion in net assets in 2010. The main source of revenue for the Part A trust fund is payroll taxes, a sum that has been decreasing due to the effects of the economy. The SMI trust fund is expected to be financed adequately because it receives both premium and general revenues, which are reset each year.

 

This leaves the Medicare Part A trust fund, covering mostly inpatient hospital care, as the funding that is in jeopardy. As with any financial decision, the trust fund will need to increase revenue, decrease expenditures or execute a combination of both.

 

The aforementioned health reform legislation already has reduced the market basket update for the Inpatient Prospective Payment System (IPPS) by 0.1 percent for the proposed budget covering the 2012 fiscal year. Combining this change with the 3.15 percent decrease in the documentation and coding adjustment that occurred in 2010, the total funding for the 2012 IPPS is expected to decline by almost $500 million.

 

RAC Implication

 

As the RACs continue to hire more staff, ramp up their data-mining capabilities and issue requests for more records, what impact will a 28 percent decrease in the Medicare trust fund have on CMS funding and its general approach? The $162 million in overpayments recovered by RACs in the second quarter will be considered the low point of their success.

 

There are two other major impacts healthcare providers will face during the next two years: ICD-10 and the new Medicare cost reporting forms. I'm sure we are all aware of the impact that the new ICD-10 coding will bring, but the change in the Medicare cost reporting forms will recalibrate costs to different cost centers, affecting future Medicare payments. This is due to the forms requiring departmental mapping to some ancillary revenue centers, including CAT scan, MRI, cardiac catherization and implantable supplies. These changes are effective for cost reports beginning on or after May 1, 2010, with payment impacts expected in two years.

 

As with any major change, continued education and advocacy is the best approach. The other advice that we can share is to make sure your reimbursement department is represented on your RAC team and that the new revenue center mapping is completed properly today!

 

About the Author

 

John Manzi is senior vice president for Panacea Healthcare Solutions. John earned his Bachelor of Science in Accounting from The College of New Jersey, Ewing, New Jersey. He is a past president of the New Jersey Chapter of the Healthcare Financial Management Association (NJHFMA). He has received the Medal of Honor from the NJHFMA and is recipient of the NJHFMA Award for the Reimbursement Coordinator Proficiency Certification Course, affiliated with Rutgers University. He has prepared and presented various educational sessions in affiliation with NJHFMA and the New Jersey Hospital Association.

 

Contact the Author

 

jmanzi@panaceahealthsolutions.com

 

To comment on this article please go to editor@racmonitor.com

 

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