The 2014 Social Security and Medicare Trustees Recommendations May Lead to Furthering Medicare Secondary Payer Legislation and Regulations

Each year, the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. Much like they have done over the last several years, in 2014, the Trustees again indicate that neither Medicare nor Social Security can sustain projected costs, and therefore again recommend legislative changes to avoid disruptive consequences for beneficiaries and taxpayers.

The Trustees indicate in their 2014 report that if lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.

Based on the 2014 report, Social Security and Medicare accounted for 41 percent of Federal expenditures in fiscal year 2013. This is expected to grow since both programs will continue to experience cost growth substantially in excess of GDP growth through the mid-2030s due to rapid population aging caused by the large baby-boom generation entering retirement and lower-birth-rate generations entering employment.

Consequently, the financial status and expected increase in enrollment in both the Social Security and Medicare programs could potentially affect Medicare as a secondary payer and therefore CMS’ efforts regarding MSP services, regulations, and enforcement thereof. This article explores such possible effects and facets.

Social Security

There are two Social Security trust funds – the Old Age and Survivors Insurance (OASI) trust fund and the Disability Insurance (DI) trust fund. OASI provides early retirement and full retirement benefits to insured workers and their families, as well as benefits to survivors of insured workers and their families. The 2014 Trustees Report provides detailed information as to the number of workers paying into the system, number of beneficiaries drawing benefits, and predictions as to the financial stability of these funds to be able to provide such benefits in the future.

Although the OASI trust fund is currently in stable shape, as it meets the Trustees 25 year or short term financial stability tests, as it has over the last several years, the report again concludes that the DI program does not satisfy the Trustees’ short-range or long-range financial adequacy. It faces the most immediate shortfall of any of the trust funds. The Trustees project DI trust fund depletion late in 2016, the same year projected in last year’s Trustees Report, as DI costs have exceeded non-interest income since 2005.

While legislation is needed to address all of Social Security’s financial imbalances, the need has become most urgent with respect to the program’s disability insurance component. As the Trustees have urged Congress to do over the last several years, the report again recommends lawmakers to act soon to avoid automatic reductions in payments to the current 11 million and expected to continue to grow DI beneficiaries in late 2016.

Medicare

There are two Medicare trust funds – the Hospital Insurance (HI) trust fund and the Supplementary Medical Insurance (SMI) trust fund. The HI trust fund oversees Medicare Part A, which provides coverage and payments to hospitals. The SMI trust fund oversees Medicare Part B, which provides coverage and payments to physicians; Medicare Part C, which provides capitated reimbursement to Medicare Advantage Plans (MAP) for Medicare beneficiaries who have chosen to receive their Medicare coverage through private health insurance plans contracted with Medicare to provide such coverage; and Medicare Part D, which provides coverage and payments for prescription medications.

The Trustees project that the HI trust fund will be the next to face depletion after the DI Trust Fund. The projected date of HI Trust Fund depletion is 2030, when revenues will only be sufficient to pay 85 percent of HI costs. As a result, the HI fund again fails the short-range and long-range Trustees’ financial adequacy tests primarily because of the significant growth in the Medicare eligible population over the next 25 years and the expected growth in needed medical services and higher costs for same during this time period.

The Trustees project that Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, Part C of SMI, which reimburses MAPs, and Part D of SMI, which provides access to prescription drug coverage, will remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs. However, the aging population and rising health care costs cause SMI projected costs to grow steadily from 1.9 percent of GDP in 2013 to approximately 3.3 percent of GDP in 2035, and then more slowly to 4.5 percent of GDP by 2088.

ACA and MSP

Built within the Trustees’ predictions are the Affordable Care Act’s (ACA) cost-reduction provisions, which are expected to provide substantial savings to all parts of Medicare. However, notwithstanding recent favorable developments, both the projected baseline and current law projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation or regulation. One of the potentially affected population bases by this shortfall is the group of Medicare beneficiaries that has primary coverage or where a primary payer is responsible for any medical problem associated with such care and treatment. As a result, it is expected that CMS will continue to step up their mandatory insurer reporting, conditional payment reimbursement, and future allocation arrangement compliance efforts through legislation and regulatory provisions.

It is anticipated that such legislative and regulatory efforts will aim to make certain that all primary payers, including liability defendants or plans, remain responsible for past and future payments related to any claim related expenses. Although according to CMS, MSP savings have grown from $2 billion annually five years ago to almost $8 billion in 2012, the belief is that these numbers have only begun to scratch the surface of the potential returns the MSP provisions will be able to provide to the trust funds and taxpayers, especially once a fully integrated, well thought out, comprehensive MSP program is created and up and running for all group health plans and non-group health plans.

Conclusion

The 2014 Social Security and Medicare Trustees report recommends lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Very specifically, the Trustees report finds that the DI program does not satisfy the Trustees’ short-range or long-range financial adequacy, with projected depletion late in 2016. The Trustees also project that the HI trust fund will be the next to face depletion, with projected depletion in 2030. The Trustees recommend taking legislative and regulatory action sooner rather than later. It is anticipated that such legislative and regulatory efforts will aim to make certain that all primary payers, including liability defendants or plans, remain responsible for past and future payments related to any claim related expenses.

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