According to a recent analysis conducted by actuaries at the Centers for Medicare and Medicaid Services (CMS), Obamacare will save Medicare nearly $200 billion by 2016. They went on to report that the law will save seniors nearly $60 billion in out-of-pocket costs.

But a report from the program’s Trustees released just after that analysis threw a bit of cold water on those estimates. Medicare’s hospital insurance trust fund is still on track to be depleted in 12 years.

And even that prediction may prove to be a bit too rosy. As the Trustees admit, “the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range . . . or the long range.”

In other words, Obamacare’s purported savings are fantasy. Congress must adopt a new approach to rescue the program from fiscal oblivion.

In 2011, Medicare covered 48.7 million Americans — and cost nearly $550 billion. There’s now a $280-billion gap between the premiums and taxes the program takes in and the benefits it pays out. Since the last presidential election, the amount by which benefit payments exceed dedicated tax collections has nearly quadrupled.
This fiscal trend is unsustainable. Medicare is inadequately financed over the next ten years, according to the Trustees. And with the “Baby Boom” generation starting to retire, there is even more pressure on Medicare’s costs.

In fact, about 10,000 new seniors sign up for the program every day. By 2035, Medicare will account for 5.7 percent of U.S. GDP, up from 3.7 percent in 2011.

Obamacare tries to change that. The Trustees count 165 provisions within Obamacare that are supposed to reduce costs in Medicare, increase revenues, improve benefits, fight fraud, and set up more efficient payment and healthcare delivery systems.

If all 165 unfold as planned, then Obamacare may realize some of the savings it promises.

The Trustees are skeptical that will happen, saying that such an outcome “will depend on the achievement of unprecedented improvements in health care provider productivity.”

Obamacare requires reductions in future payment rates to physicians “equal to the increase in economy-wide multifactor productivity.” In other words, spending should go down as doctors grow more productive over time.

But productivity growth in the service sector — including among healthcare providers — historically lags behind that for the rest of the economy. After all, it’s much easier to automate the manufacture of a car — and capture the resulting productivity gains — than it is to automate a doctor’s visit with a patient.

Indeed, hospital productivity has grown by just 0.4 percent in recent years. That’s a little more than one-third what is expected across the entire economy. And it’s that broader rate that will determine what Medicare pays providers.

Skilled nursing facilities and home health agencies haven’t enjoyed any productivity gains. According to Medicare’s chief actuary, Richard Foster, these entities would have to “achieve twice the rate of economy-wide multifactor productivity increases to break even” under Obamacare.

Even if Obamacare’s productivity assumptions come true, Medicare will still be on disastrous financial footing. Indeed, a recent CBO study estimated that Medicare will cost $1 trillion annually and be bankrupt by 2022 — two years before the programs Trustees estimate.

That’s in large part because Obamacare does nothing to fix a scheduled 30-percent cut in payment rates to doctors who treat Medicare patients.

In 1997, Congress enacted the sustainable growth rate (SGR) formula to limit the growth of payments to doctors participating in Medicare to the overall economic growth rate. But for the past ten years, Congress has waived the adjustments in reimbursements that the SGR has called for — effectively postponing spending cuts.That decade of procrastination has resulted in this year’s pending 30-percent cut in Medicare payments. There’s no way Congress will allow that reduction to take effect.

Reimbursements in Medicare are already low — less than 65 percent of the average price on the private market, according to one estimate. Some doctors today refuse to treat new enrollees or have opted out of the program altogether. Lowering reimbursement rates further would cause more doctors to leave — so Medicare beneficiaries would face even more difficulty getting care.

Instead of maintaining the status quo and hoping for unlikely savings, we should raise the eligibility age at which seniors qualify for Medicare and implement a system of means-tested Medicare vouchers or premium support. These would curtail the government’s undue influence in the healthcare market and give consumers a direct financial incentive to shop for a health plan that suits their needs and budget.

Medicare is quickly headed toward financial ruin, and Obamacare’s strategy for saving it amounts to little more than hope. Lawmakers need to face this reality and undertake serious structural reforms before it is too late.

Source: http://www.forbes.com/sites/sallypipes/2012/06/11/dont-believe-the-actuaries-medicare-is-far-from-safe/