Medicare Trustees Confirm Democrats' Medicare Plan Would Result in 'Actual' 17% Medicare Cut

Thomas Lifson
Further confirmation came today that the GOP must play offense on Medicare, rather than getting trapped into defending the Ryan budget. The status quo is not an option.

In testimony before the House Ways and Means Committee today, two Medicare Trustess, Drs. Charles Blahous and Robert Reischauer, confirmed that based on our current path in 2024 there would be "actual" cuts to Medicare at 17%. They also confirmed that Medicare would end itself by 2024 unless actions are taken to save the program. Here are video excerpts:

 

Here is the full transcript:

 

 

 

Rep. Roskam: Thank you, Mr. Chairman. Your report shows that Medicare will now be bankrupt in 2024. Americans would then be forced to either endure a massive tax hike or "an immediate 17-percent reduction in expenditures." In other words an immediate 17-percent Medicare cut. Can you explain what you mean by immediate?

 

Dr. Blahous: Well the way that the trust funds work, both on the Social Security side and on the Medicare HI side, is that the amount of expenditures the program can put out there is limited by what's in the trust funds. Now on the SMI side that's not really an issue because we just give the trust fund each year whatever is required to keep pace with costs. But once that trust fund runs out, the program lacks the authority to make benefit payments.  Now there have been a lot of legal analyses that have been done of what happens when the trust fund runs out and they don't all agree, but a fairly common one is that payments would simply have to be suspended or delayed until the requisite financing came into the trust fund which would have the effect of reducing payments simply by virtue of delay. 

Roskam: And that immediate is the common understanding of immediate, in other words, this present moment in time. In other words, when insolvency happens, then you immediately are prohibited based on the law and based on your understanding as a trustee from paying anything further out. And your estimation is that it would be a 17-percent benefit cut. Is that right?

 

Dr. Blahous: Well its 17 percent on average over 75 years, now it varies according to year. I think in 2024 specifically it's about 10 percent and that increases, then it becomes 25 percent by the 2040s.

Dr. Reischauer: What I think my colleague was describing is when the trust fund became insolvent, money would still be flowing in from tax receipts and Medicare would delay paying bills, and so a hospital would send this bill in and rather than being paid in 24 days, it might have to wait five months. The CMS and intermediaries and other payers would be writing out the checks and transferring the resources to the hospital, hospice, whatever, on a much delayed basis. 

Roskam: So that cut just so I'm clear, is not a hypothetical cut, it's not a hypothetical delay, it's an actual delay in payment to the point of reaching this 17-percent number based on your own projection. Is that right?

 

Dr. Blahous: That's right. The Social Security Act which deals with these trust fund issues is very explicit that payments can only be made from the trust funds.

Roskam: So there's no other flexibility. If the revenues aren't there, if an insolvency is declared, you have no other remedy but to move forward and make those cuts. Is that right? 

Dr. Blahous: Right. The programs don't have the authority to borrow in excess of the resources provided by the trust funds.

 

Roskam: And absent some change in the program your prediction is that is where our nation will be in 2024. That's right? 

Dr. Blahous: That's right.

 

Dr. Reischauer: With respect to the hospital insurance system.

Roskam: I understand. So when the gentleman from Wisconsin said that there's a proposal that's out there by the Majority on this Committee that ends Medicare. In fact, Medicare as we know it will end in 2024, absent some change in policy or some change in moving forward. That's right isn't it? 

Dr. Blahous: Yes.

Hat tip: Rep Roskam

Further confirmation came today that the GOP must play offense on Medicare, rather than getting trapped into defending the Ryan budget. The status quo is not an option.

In testimony before the House Ways and Means Committee today, two Medicare Trustess, Drs. Charles Blahous and Robert Reischauer, confirmed that based on our current path in 2024 there would be "actual" cuts to Medicare at 17%. They also confirmed that Medicare would end itself by 2024 unless actions are taken to save the program. Here are video excerpts:

 

Here is the full transcript:

 

 

 

Rep. Roskam: Thank you, Mr. Chairman. Your report shows that Medicare will now be bankrupt in 2024. Americans would then be forced to either endure a massive tax hike or "an immediate 17-percent reduction in expenditures." In other words an immediate 17-percent Medicare cut. Can you explain what you mean by immediate?

 

Dr. Blahous: Well the way that the trust funds work, both on the Social Security side and on the Medicare HI side, is that the amount of expenditures the program can put out there is limited by what's in the trust funds. Now on the SMI side that's not really an issue because we just give the trust fund each year whatever is required to keep pace with costs. But once that trust fund runs out, the program lacks the authority to make benefit payments.  Now there have been a lot of legal analyses that have been done of what happens when the trust fund runs out and they don't all agree, but a fairly common one is that payments would simply have to be suspended or delayed until the requisite financing came into the trust fund which would have the effect of reducing payments simply by virtue of delay. 

Roskam: And that immediate is the common understanding of immediate, in other words, this present moment in time. In other words, when insolvency happens, then you immediately are prohibited based on the law and based on your understanding as a trustee from paying anything further out. And your estimation is that it would be a 17-percent benefit cut. Is that right?

 

Dr. Blahous: Well its 17 percent on average over 75 years, now it varies according to year. I think in 2024 specifically it's about 10 percent and that increases, then it becomes 25 percent by the 2040s.

Dr. Reischauer: What I think my colleague was describing is when the trust fund became insolvent, money would still be flowing in from tax receipts and Medicare would delay paying bills, and so a hospital would send this bill in and rather than being paid in 24 days, it might have to wait five months. The CMS and intermediaries and other payers would be writing out the checks and transferring the resources to the hospital, hospice, whatever, on a much delayed basis. 

Roskam: So that cut just so I'm clear, is not a hypothetical cut, it's not a hypothetical delay, it's an actual delay in payment to the point of reaching this 17-percent number based on your own projection. Is that right?

 

Dr. Blahous: That's right. The Social Security Act which deals with these trust fund issues is very explicit that payments can only be made from the trust funds.

Roskam: So there's no other flexibility. If the revenues aren't there, if an insolvency is declared, you have no other remedy but to move forward and make those cuts. Is that right? 

Dr. Blahous: Right. The programs don't have the authority to borrow in excess of the resources provided by the trust funds.

 

Roskam: And absent some change in the program your prediction is that is where our nation will be in 2024. That's right? 

Dr. Blahous: That's right.

 

Dr. Reischauer: With respect to the hospital insurance system.

Roskam: I understand. So when the gentleman from Wisconsin said that there's a proposal that's out there by the Majority on this Committee that ends Medicare. In fact, Medicare as we know it will end in 2024, absent some change in policy or some change in moving forward. That's right isn't it? 

Dr. Blahous: Yes.

Hat tip: Rep Roskam