Earlier this week, the Board of Trustees for Medicare and Social Security released its 2012 annual report. The report noted that the Medicare trust fund is not adequately financed over the next ten years, and without changes to current law, the fund will be insolvent as of 2024. The insolvency date did not change from the estimated date reported in the Board’s 2011 annual report due, in part, to cuts in provider payments and lower than anticipated expenditures in 2011.

The report provides a summary of 2011 Medicare statistics as well as its predictions. According to the report, Medicare covered 48.7 million people in 2011 (40.4 million 65 and older and 8.3 million disabled), approximately 25% of which are Medicare Advantage enrollees. Total expenditures in 2011 were $549.1 billion. Expenditures in 2011 were lower than the Board’s estimate, but the Board expects projected levels to grow more quickly than previously estimated due to changes in provider assumptions and the projected faster growth in earnings after 2014.

The report offers short-range predictions, including predictions that the fund is adequately financed over the next ten years due to the fact that Parts B and D premiums and general revenue income are set annually to match expected costs. However, Parts B and D costs have increased, averaging 5.9% and 7.2% annual growth. Under current law, a 31% physician fee reduction is scheduled to go into effect in 2013, which the report predicts will unrealistically constrain the Part B annual growth rate.

The report also offers the Board’s long-range predictions, including an increase in Parts B and D outlays. Part B outlays are expected to increase from 1.5% of GDP in 2011 to 2.5 or 4.5% by 2086. Part D outlays are expected to increase from 0.4% of GDP in 2011 to 1.5% by 2086. The Board projects that, under current law, expenditures will increase at a faster pace than aggregate workers’ earnings or the economy, with estimated increases in expenditures from 3.7% of GDP in 2011 to 6.7% by 2086. However, according to the Board, if Congress continues to override statutory decreases in physician fees, and if reduced fee increases for other Medicare services are not sustained, then Medicare spending will increase to approximately 10.4% of GDP by 2086.

The Board’s report recommends consideration of further reforms in the near future to allow for more flexible and gradual reform implementation and to allow providers and beneficiaries to adjust expectations of the Medicare program.