Kusserow’s Corner: Medicare Trust Fund Estimated to Survive through 2030

It is widely known that the aging of the population is creating a “time bomb” for Medicare Part A. The question for decades has been when will the bomb explode, that is, when will the Fund bankrupt and not have enough money to pay for Medicare Beneficiary services. The Trust Fund is supported by the Federal Insurance Contribution (FICA) tax of 7.65 percent that is automatically withheld from every employee’s check with another 7.65 percent being paid by the employer on behalf of the employee. This is to pay into both the Social Security and Health Insurance (HI) Trust Funds. Of the 7.65 percent FICA, exactly 1.45 percent of the salary goes into the HI trust.

The reason for the time bomb concern is that, demographically, we have long known that the ratio of working employees that contribute to the trust funds is declining against the growing number of elderly individuals who are drawing against the funds as Social Security recipients and Medicare beneficiaries. The simple reality is that Americans are living longer. There are only a few options open for staving off the explosion for the Medicare Trust Fund: raise FICA taxes, reduce the rates of escalation of health care costs, and/or cut benefits.

During my tenure as HHS Inspector General, we worked diligently to reduce the rate of health care costs due to waste, abuse, and fraud. The Office of Inspector General (OIG) continues in this effort. No matter the amount of effort, this cannot but slightly slow down the rate of the explosion. Other measures to reduce the rate of increase in health care costs relate to cutting back expenditures for health services, not an attractive alternative. The daily press speaks about changes in reimbursement initiatives by Medicare and how that invokes a great deal of outcry from the provider community. The most controversial method to staving off bankruptcy of the HI is to cut on the benefit side of the equation. So far, the only step in that direction is moving towards means-tested programs whereby those with larger incomes may receive fewer benefits.

So, the question comes down to the estimated date of the explosion or bankruptcy of HI. This year, the Office of the Actuary in CMS issued its most recent report on the state of the Medicare Trust Fund to the Trustees who are mandated to report annually to Congress on the financial operations and actuarial status of the program. There is one combined report, discussing both the HI program (Medicare Part A) and the Supplementary Medical Insurance (SMI) program (Medicare Part B and Prescription Drug Coverage). It is the second-largest social insurance program in the U.S. after Social Security, with 52.3 million beneficiaries and total expenditures of $583 billion in 2013. The Trustees Report details a substantial amount of information on the past and estimated future financial operations of the Trust Funds. The report projects that the Medicare HI Trust Fund will face depletion by 2030.

The Trustees project that total Medicare costs (including both HI and SMI expenditures) will grow from approximately 3.5 percent of GDP in 2013 to 5.3 percent of GDP by 2035, and will increase gradually thereafter to about 6.9 percent of GDP by 2088. The Trustees noted that projected long-term actuarial imbalance is smaller than that of the Social Security trust funds under the assumptions employed in this report.

It is important to note that Part B of SMI, which pays doctors’ bills and other outpatient expenses, and Part D of SMI, which provides access to prescription drug coverage, is outside the Trust Fund. Under current law, it is funded by the Treasury of the United States and is part of the federal budget. As such, the federal government automatically provides financing each year to meet the next year’s expected costs. General revenues finance roughly three-quarters of these costs, and premiums paid by beneficiaries finance almost all of the remaining quarter. SMI receives a small amount of financing from special payments by states and from fees on manufacturers and importers of brand-name prescription drugs.

However, the aging population and rising health care costs cause SMI projected costs to grow steadily from 1.9 percent of the Gross Domestic Product (GDP) in 2013 to approximately 3.3 percent of GDP in 2035, and then more slowly to 4.5 percent of GDP by 2088. What this means is that it could bankrupt the federal government. As such, we can expect that health care will remain a top policy issue for the federal government for years to come as they seek solutions to a problem that is growing daily. What providers can expect is increased scrutiny and action by enforcement agencies to find any and all waste, abuse, and fraud that is contributing to the problem.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2014 Strategic Management Services, LLC. Published with permission.

Kusserow’s Corner: Medicare Appeals Backlog Update—New Suit Filed by Beneficiaries

Over the last year, I have blogged many more than eight times on the “saga” of the backlog in the Medicare claims appeals process. Last year at this time, Nancy Griswold, Chief Administrative Law Judge (ALJ) in an open memorandum to Office of Medicare Hearings and Appeals (OMHA) Medicare Appellants, stated effective July 15, 2013, they were suspending the assignment of most new requests for an ALJ hearing for at least two years. This was to allow time to catch up on almost a half million claims that are backlogged. They simply have not been able to keep pace with the rising caseload and have been falling further and further behind. Also, last year the American Hospital Association and three hospital and healthcare systems sued HHS over the long backlog in Medicare claim denial appeals. Now patients are joining in with a nationwide class action suit.

Now on August 26, 2014, in the U.S. District Court in Connecticut, the Center for Medicare Advocacy filed a class action suit on the behalf of five named Medicare beneficiary plaintiffs that had waited more than three months for a hearing and decision by an ALJ on their Medicare appeals, even though the law says an appeal decision must be issued within 90 days (Lessler v Burwell, 3:14-CV-1230, D. Conn.). In the suit, the beneficiaries argue that this failure to receive an ALJ decision within that 90-day period is a “defective administrative review process” that violates the Medicare statute and the Due Process Clause of the Fifth Amendment. According to the filing, the current average wait time between when a request for a hearing is filed and when a decision is issued is, on average, 489 days, or five times as long as the maximum amount of time it is supposed to take under the law. The suit seeks a declaratory, injunctive, and mandamus relief to compel the HHS Secretary to meet statutory deadlines for reviewing Medicare claim denials. The American Hospital Association suit also calls for HHS to ensure that its ALJs meet the statutory 90-day timeline requirement for deciding Medicare claim appeals. The suit also asks the Court to issue a “declaratory judgment that HHS’s delay in adjudication of Medicare appeals violates federal law” and to also compel HHS to comply with providing timely ALJ reviews within the statutory limit.

There are now several lawsuits in play that impact on a variety of appeals handled by OMHA that are part of the backlog, including:

  1. Medicare eligibility and entitlement
  2. Part B and D income-related premiums
  3. Part A and B pre- and post-payment claims (MACs, RACs, PSC/ZPICs)
  4. Continuation of care (QIOs)
  5. Part C managed care coverage (Medicare Advantage programs)
  6. Part D prescription drug coverage (Prescription Drug Plans)

As if the lawsuits are not enough, this problem has drawn Congressional attention following OMHA’s actions. A bipartisan group of 111 House members signed a letter to the HHS Secretary earlier this year calling for a fix to this problem and an easing of the backlog, as well as a continued effort to make sure beneficiaries’ appeals are handled first. Stay tuned; more is sure to follow in this messy situation.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow’s Corner Newsletter

Copyright © 2014 Strategic Management Services, LLC. Published with permission.

Trillions? Trillions! CMS Actuary Projects 2013 Spending at $2.9T

Health spending growth remained slow in 2013, with faster growth on the horizon due to the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148) coverage expansion, economic growth and an aging population according to the CMS Office of the Actuary in a report published by Health Affairs on September 3, 2014. Sequestration, sluggish economic recovery and increases in private health insurance cost-sharing requirements attributed to the slow growth of 3.6 percent for health spending in 2013. Overall, in 2013 health care expenditures sponsored or paid for by the government (federal, state, and local) are expected to have reached $1.3 trillion, which is a 3.2 percent growth, as compared to 3.9 percent growth, or $1.6 trillion seen in spending by business, households and private sources.

Despite the slow growth in 2013, during the study’s full projection period of 2013 to 2023, national health expenditures are projected to increase at an average rate of 5.8 percent a year, which is 1.1 percentage point greater than the average annual growth rate in nominal gross domestic product. This is still slower than the growth rate from 1990 to 2008, which grew 2.0 percentage points faster than the gross domestic product growth. The 2023 projection for government financed health care costs is $2.5 trillion.

In 2013 Medicare spending growth slowed, decelerating from 4.8 percent to 3.3 percent. This is attributed to budget sequestration requirements and other payment adjustments. Growth in spending is projected to increase in 2014, due in large part to the additional nine million Americans who gained insurance through private health insurance plans and Medicaid. Looking ahead to 2015, the national health spending growth is expected to slow to 4.9 percent, due to “significant decelerations in Medicare and Medicaid spending.” Reduced payments to Medicare Advantage, or Medicare Part C plans, will contribute to the deceleration.

Total hospital spending growth is expected to slow from 4.9 percent in 2012 to 4.1 percent in 2013, which equals $918.8 billion. More drastically, Medicare hospital spending has slowed from 4.5 percent to 2.5 percent over the same time frame. The ACA has led to increased use of hospital services which should result in growth acceleration of 4.5 percent in 2014.

CMS Offers Partial Payment for Certain Part A Hospital Claims Under Appeal

CMS is offering to pay hospitals 68 percent of the allowable amount for all claims that are currently in the appeals process in which the inpatient status of the patient is being appealed, according to a CMS web post. CMS hopes that this will alleviate the long backlog of cases awaiting a hearing before an administrative law judge (ALJ). The majority of these cases involve recovery audit contractors’ (RACs’) decisions that an inpatient claim was not reasonable or necessary, as the service could have been better provided in an outpatient setting. The American Hospital Association (AHA) believes that nearly $1.5 billion in claims are currently being appealed because of this issue.


Hospitals have until October 31, 2014 to email CMS a signed administrative agreement and an Excel spreadsheet of the claims on appeal that would be eligible for the settlement. Directions for submitting the email are available on a CMS website. Eligible hospitals include acute care hospitals paid under the inpatient prospective payment system (IPPS) or that receive periodic interim payments (PIP), hospitals operating under a waiver in Maryland, and critical access hospitals. Claims from psychiatric hospitals, inpatient rehabilitation facilities, long-term care hospitals, cancer hospitals, and children’s hospitals are not eligible for the settlement

CMS will review the administrative agreement and the claims spreadsheet. It will pay 68 percent of the allowable amount for each claim on the spreadsheet that it can verify is currently being appealed for inpatient status. For those claims, CMS will sign the administrative agreement, make a payment, and the appeals will be dismissed. Hospitals will get a chance to discuss with CMS the claims it could not verify to be on appeal for inpatient status. An additional agreement will be signed and an additional payment will be made for those claims if the discussion leads to the conclusion that those claims, as well, were on appeal for inpatient status.


It is estimated that there are currently 375,000 appeals waiting to be heard, according to a memo from Nancy Griswold, Chief Administrative Law Judge for HHS’ Office of Medicare Hearings and Appeals (OMHA). “In just under two years, the OMHA backlog has grown from pending appeals involving 92,000 claims for services and entitlements to appeals involving over 460,000 claims for services and entitlements,” said Griswold. In a January 14, 2014 letter to the CMS Administrator, the AHA claimed that nearly 70 percent of appeals of Part A claims are overturned in the hospitals’ favor.

Two-Midnight Rule

Only claims with dates of admission prior to October 1, 2013 will be eligible for the settlement offer, as CMS believes that the institution of the two-midnight rule in the Final rule updating the IPPS payment system for Fiscal Year 2014 has alleviated the problem. In that Final rule, CMS instructed RACs not to dispute any inpatient claims if the inpatient stay is more than one beneficiary day or spans two midnights. In either case, the inpatient stay is reasonable and necessary. The starting point for the two-midnight clock is when the patient is moved from any outpatient area of the hospital to an inpatient bed, and the patient’s physician or other qualified practitioner orders an inpatient stay.