Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions here. Check back every Monday, Wednesday and Friday afternoon for the latest edition, and read previous columns here.

The annual release of the Medicare Board of Trustees' Report is, by its nature, never a fun event.

Each year, reporters shuffle into a big Treasury Department conference room. There, health policy experts stand in front of a podium and tell them about the exact moment that the country's largest health insurer will run out of money.

This year, officials use phrases like "fund exhaustion," "unsustainable path" and "imminent depletion." And this was to describe what was actually one of the trustees' sunnier forecasts!


Secretary of Health and Human Services Kathleen Sebelius discusses the new forecast for the Medicare trust fund on Friday. (Larry Downing/Reuters)

Health and Human Services Secretary Kathleen Sebelius did announce that the Medicare's trust fund would last until 2026, two years longer than previously expected. She quickly pointed to the Affordable Care Act, which made significant cuts to Medicare spending, as a key element in shoring up Medicare's financial stability.

"The Affordable Care Act has helped put Medicare on more stable ground without eliminating a single benefit," Sebelius said.

Before anyone had time to pop champagne, though, Robert Reischauer, a public trustee of Medicare and former president of of the Urban Institute, quickly warned against reading too much into the program's extended lifespan.

"I think such an interpretation would be a mistake," he warned. "Notwithstanding the fact that I'm cautiously optimistic that the slowdown will continue...Medicare's projections involve a lot of uncertainty."

So, what should we think about Medicare's extended solvency? First, let's recall what the trust fund is and what its lifespan tells us.

The Medicare Hospital Trust Fund pays most of the bills for Medicare Part A, which covers hospital visits. At its core, the trust fund is an accounting mechanism, its solvency dependent on what it takes in, via payroll taxes, and what it pays out in medical benefits.

“The fund is a fiscally neutral element in the goods and services of Medicare finances,” Theodore Marmor, Spencer Martin and Jonathan Oberlander wrote in a 2003 scholarly article.

That's what makes the extension of the trust fund largely predictable this year: The Affordable Care Act made more than $716 billion in cuts to the Medicare program. Many of those hit the hospitals that  the Medicare Trust Fund regularly sends billions in payments to.


Cutting the rate that Medicare pays for each heart attack visit, for example, means that payroll tax income will have to stretch to cover a few more heart attack treatments.

Those Affordable Care Act rate cuts have been bolstered by another new development in health policy: a dramatic slowdown in the growth of health care costs. Medicare's per capita costs grew by 1.7 percent each year between 2010 and 2012, slower than the rest of the economy.

Since health care costs and providers' payments are growing at a slower rate than they they were a few years ago, its no surprise that the same payroll tax dollars can stretch to cover more health care.

The big question is whether either of those trends will last. This is the point that Reischauer was making when he cautioned against reading too much into the extra two years of the Medicare trust fund's lifespan.

We don't yet know how much of the health cost drop is an effect of the economic slowdown and how much reflects structural changes in the economy. Recent academic research suggests the slowing costs are a product of both, leading health policy experts to warn against making strong assumptions about whether slower cost growth is here to stay.

"There are lots of uncertainties associated with medical technologies which have historically pushed up costs," Reischauer said.

The Affordable Care Act's reductions are more certain; they are, after all, written into law. Still, there has been skepticism about whether doctors and hospitals can actually deliver on those changes -- or whether they will find the new financial restraints too onerous, and clamor for a reversal from Congress.

Rick Foster, the former chief actuary at Medicare, raised this concern at a House Budget hearing two years ago, warning that "it is doubtful that many [health care providers] will be able to improve their own productivity to the degree achieved by the economy at large."

With the release of the 2013 trustees report, we have a 280-page document that tells us what Medicare's costs look like right now and, if they keep looking like that, how much we'll spend on health care in the future. It tells us less, however, about whether the trends driving the costs down today will continue.

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