Long-term fiscal impact of the of COVID-19 pandemic on the overall federal debt and Medicare Part A Trust Fund shortfall cannot be overlooked

• The pandemic has accelerated budget deficits and national debt.
• Less focused on is the impact to the Part A Trust fund which is projected to be insolvent within six years.
• Prominent healthcare economists recommend reducing payments from the Trust Fund and increasing revenue coming into the fund to ensure its solvency.

Given we’re in the middle of a pandemic-induced economic downturn that is likely the worst since the Great Depression, fiscal responsibility means doing what needs to be done to staunch job losses, sustain the financial system, support healthcare providers and keep the lights on at main street businesses.

But at some point, we will need to address both the overall federal debt and the Medicare Part A Trust Fund shortfall. According to Congressional Quarterly, the “Congressional Budget Office estimated that the federal deficit in May was $424 billion, substantially lower than April’s $738 billion but still the second-largest monthly shortfall since records have been kept. The deficit for the first eight months of fiscal 2020 was about $1.9 trillion, the CBO said, or $1.2 trillion greater than during the same period the previous year.”

Just for emphasis (and at the risk of pointing out the obvious) the U.S. government ran a larger deficit in the month of April 2020 than it did cumulatively in the first eight months of fiscal 2019 (or for that matter the total annual deficit for each of the years 2013 – 2017).

Turning to the Part A Trust Fund, a recent Health Affairs blog authored by prominent healthcare economists points out, “In the most recent Actuaries’ report issued in April 2020, the Trust Fund was projected to be depleted in 2026. COVID-19 is causing the Medicare Part A program and the Hospital Insurance (HI) Trust Fund to contend with large reductions in revenues due to increased unemployment, reductions in salaries, shifts to part-time employment from full time and a reduction in labor force participation. In addition to revenue declines, there was a 20 percent increase in payments to hospitals for COVID-related care and elimination of cost sharing associated with treatment of COVID. Furthermore, a part of the hospital relief effort, the Advance Payment Program, is adding to claims made against the Part A program. All this is happening as 10,000 new people enter the Medicare program every day. It is clear that the HI Trust Fund will come under additional stress. While no formal projections have been made, the Actuaries’ worst-case scenario in this year’s report called for an expected exhaustion date closer to 2024. These pressures on the Trust Fund could be aggravated if the Medicare Advanced Payment program is extended and allowed to apply to Part A as it did in its original formulation.”

To address issues with the trust fund’s looming insolvency, the Health Affairs’ blog’s authors suggest changes in tax policy (shifting some revenues from the general fund to the trust fund, increasing the Medicare payroll tax on high-income earners) and program policy (changes to Medicare Advantage benchmark to prevent windfalls from COVID-19, shifting Part A Home Health (HHA) expenditures to Part B – the general fund, implementing site neutral payments for hospitals, and adjusting the physician add-on for Part B separately payable drugs).

Takeaway

The reality is the savings from implementing site Medicare neutral payments for outpatient services provided in hospital-based departments were eventually going to happen. And now will likely be greater than $11 billion. Granted, this assumes CMS/Congress makes telehealth permanent but doesn’t increase the originating site fee (OSF) for services provided in HOPDS. The OSF fee is too low given the costs of running a practice don’t magically disappear into the internet (as discussed in my blog  last week).

However, using telehealth to address site neutrality does make some sense to me. The challenge with a blanket prohibition, as proposed in the Health Affairs blog and by MedPAC, is there are many patients who are sick enough to require all the backup/standby services hospitals claim make the higher facility fee necessary. If you’re healthy enough to get care in your home, you probably don’t need those services, so this might be a good way to sort that issue.

Proposals to reduce payments on Part B drugs will face stiff resistance from hospitals, physicians, pharma and AARP. Not exactly a winning combination to get your policy idea implemented in D.C.  I’ll note that the Internal Pricing Index Model proposal has been stuck at OMB for almost a year (since June 20, 2019). And I’m not sure how much political will there is to get into a food fight with pharma given we’re all depending on them to bail us out of this mess (with a COVID-19 vaccine).

Moving the portions of home health spending covered under Part A (trust fund) to Part B (general revenues), I think is clever. But, it just shifts the problem’s time frame from five years to 10 to 15 years. Finally, longer term, my guess is we’ll see more provider payment cuts proposed by folks on the right if the administration changes as it will be hatching season for the deficit hawks.