TREASURY, CMS RELEASES

---------- Forwarded message ----------

From: Office of Public Affairs

Date: Thu, Aug 5, 2010 at 11:02 AM

Subject: STATEMENT BY SECRETARY GEITHNER ON THE RELEASES OF SOCIAL SECURITY AND MEDICARE
TRUSTEES REPORTS

To:

Treasury Building

U.S. Treasury Department

Office of Public Affairs

FOR IMMEDIATE RELEASE: August 5, 2010

CONTACT: Treasury Public Affairs, 202-622-2960

Statement by Secretary Geithner on the Releases of

Social Security and Medicare Trustees Reports

For the Social Security Report, visit link: http://www.ssa.gov/OACT/TR/2010/index.html

For the Medicare Report, visit link: http://www.cms.gov/ReportsTrustFunds/01_Overview.asp

For the summaries of both Reports, visit link.

The Social Security and Medicare Boards of Trustees met this afternoon to complete their annual
financial review of the programs and to transmit their Reports to Congress. I welcome my fellow
Trustees. I also want to acknowledge the hard work and dedication of the chief actuaries, Stephen Goss
and Richard Foster, and their staffs, who worked especially hard this year to incorporate the effects of
health care reform in the reports.
Seventy-five years ago this month, President Roosevelt signed the Social Security Act into law, creating
the program that tens of millions of Americans now rely on to help them retire with economic security.
Thirty years later, President Johnson signed amendments to that law creating Medicare, providing
health insurance for our older Americans. And this year, President Obama signed the Affordable Care
Act, giving Americans more control over their healthcare decisions, ending insurance company abuses,
and taking major steps to bring down health care costs over the long term.

The impact of health care reform is made clear by the Trustees Reports, which show some very positive
developments for Social Security and especially Medicare. But they also remind us that we must
continue to make progress addressing the financing challenges facing the long-term solvency of these
programs.

When we delivered our Reports last spring I argued that it was imperative that we gain control of
Medicare costs by delivering health care services more efficiently, and that doing so requires a larger
effort to control health care costs and improve quality more generally. With the recent enactment of
the Affordable Care Act (ACA), we have taken a huge step in that direction. This new law gives
Americans more control over their healthcare decisions, ends insurance company abuses and will bring
down health care costs over the long term.

The Affordable Care Act has dramatically improved projected Medicare finances. Medicare’s Hospital
Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than was
projected last year, which is a record increase from one report to the next. In addition, the 75-year
financial shortfall for HI has been reduced to 0.66 percent of taxable payroll from 3.88 percent of
taxable payroll in last year’s report, and the projected costs for the Medicare Supplementary Medical
Insurance (SMI) program over the next 75 years, expressed as a share of GDP, are down 23 percent
relative to the projections in the 2009 report Nearly all of these improvements in projected Medicare
finances are due to the Affordable Care Act President Obama signed into law in March.

As impressive as these achievements are, there is still work to be done. Although HI financing is
projected to be sufficient until 2029, the HI Trust Fund balance is expected to fall below one year’s
projected expenditure beginning in 2012, which means the test for short-range financial adequacy is
not met. And it is projected that SMI will continue to put increasing pressure on the federal budget and
beneficiaries in the years ahead, though to a much lesser extent than was projected last year, prior to
the passage of the Affordable Care Act. Over the next 75 years, SMI costs are expected to average 3.3
percent of GDP, which is 1.4 percentage points higher than the SMI cost share of GDP was in 2009, so
additional reform measures will be needed. Those measures will be informed by experiments with
alternative provider payment mechanisms and patient care models that are authorized in the ACA, as
well as by the recommendations of the newly created Independent Payment Advisory Board.

The Affordable Care Act also improves Social Security’s finances. Starting in 2019, a new tax on high-
cost health care plans is expected to result in a shift in labor compensation from health insurance to
earnings, which are subject to Social Security and Medicare taxes. This factor more than accounts for
the reduction in Social Security’s actuarial deficit to 1.92 percent of taxable payroll from 2.0 percent of
taxable payroll projected last year.

The recession has, however, somewhat worsened Social Security’s very near term outlook. Benefit
payments are expected to exceed tax revenue for the first time this year, six years earlier than was
projected last year, but the improving economy is expected to result in rough balance between Social
Security taxes and expenditures for several years before the retirement of the baby boom generation
swells the beneficiary population and causes deficits to grow rapidly. It is projected that tax and interest
income will be sufficient to pay benefits through 2024, after which the Trust Fund will be drawn down
until depleted in 2037, the same date of Trust Fund exhaustion projected last year. After 2037, it is
expected that tax income will be sufficient to finance more than three quarters of scheduled benefits.

Despite the projection that Social Security can continue to pay full benefits for nearly 30 years, the
sooner action is taken the more options for reform will be available and the fairer reforms will be to our
children and grandchildren. Now that we have taken meaningful steps to put Medicare on a sustainable
path and moved quickly and aggressively to rescue our economy and put us a path to continued future
growth, we must work to address the other intermediate- and long-term fiscal imbalances that the
federal government faces as well.

To that end, the President has proposed some important steps to put us on a fiscally responsible path.
First, the Administration’s Budget puts a three-year freeze on non-security discretionary funding. The
President reinstated pay-as-you budgeting that helped lead to the economic prosperity of the 1990s.
And the President has appointed a bipartisan Fiscal Commission which will make further
recommendations by the end of the year. These measures, along with further healing of our economy,
will help make sure we have strong and sustainable growth that will benefit all Americans.

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*DEPARTMENT OF HEALTH & HUMAN SERVICES*

Centers for Medicare & Medicaid Services
Room 352-G
200 Independence Avenue, SW
Washington, DC 20201
Office of Media Affairs

MEDICARE FACT SHEET

For Immediate release Contact: CMS Office of Media Relations

August 5, 2010 (202) 690-6145

*Medicare Trustees Report Shows Substantial Improvement in Financial Status

as Result of Affordable Care Act*

*TRUST FUND SECURITY*

*Part A*

In their annual report, the Medicare Board of Trustees today announced that the financial outlook for
both the major trust funds supporting Medicare has been substantially improved as a result of the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010. The Trustees report that Medicare's Hospital Insurance (HI) Trust Fund is
now projected to remain solvent until 2029, 12 years longer than reported last year. In addition, the HI
long-range actuarial deficit has been reduced to 0.66 percent of taxable payroll, which is one-sixth of its
projected amount prior to the Affordable Care Act. Although HI costs are estimated to continue to
exceed trust fund income for the next few years, as they have since 2008, the savings under the new
health reform act are expected to result in fund surpluses during 2014-2022.

*Part B*

Projected costs for the Part B account in the Supplementary Medical Insurance (SMI) Trust Fund are also
much lower as a result of the Affordable Care Act. Part B spending currently approximates 1.5 percent of
Gross Domestic Product (GDP). Last year's Trustees report projected that would increase to 4.5 percent
by the end of the 75 year projection period. However, now, under current law, it is projected to reach
only 2.5 percent of GDP by the end of the Trustees' 75-year projection period - a
substantial reduction. Part B is automatically in financial balance because beneficiary premiums and
general revenue financing are reset each year to match the expected costs of the program for the
following year. The Trustees state that actual Part B costs are very likely to exceed the current law
projections because Congress is expected to continue to override an existing provision in the Medicare
law that would require substantial reductions in Medicare payments to physicians over the next 3
years. Under the current "sustainable growth rate" (SGR) formula, physician payment rates would have
to be reduced by about 23 percent on Dec. 1, 2010, a further 6.5 percent on Jan. 1, 2011, and 2.9
percent on Jan. 1, 2012.

*Part D*

Part D, the Medicare prescription drug program, is also in financial balance as a result of annual
updating of enrollee premiums and federal payment rates. Projected costs are slightly lower overall than
in last year's report, reflecting lower-than-expected costs in 2008-2009, which were partially offset by
higher benefits from phasing out the coverage gap.
*Sources of savings*

The Trustees note that the largest amount of projected savings under the Affordable Care Act comes
from lower annual increases in the prices Medicare pays for services by hospitals, skilled nursing
facilities, home health agencies, and most other providers. Payment increases will be reduced by the
increase in "multifactor" productivity for the economy overall, which is about 1.1 percent per year.

Other provisions in the Affordable Care Act reduce Medicare costs through lower payments to private
Medicare Advantage health plans. The additional contribution of 0.9 percent of earnings above
$200,000 for single taxpayers or $250,000 for married couples filing joint returns which directly benefits
the Medicare Hospital Insurance Trust Fund also aids in improving Medicare's financial outlook. Because
the earnings thresholds are not indexed, an increasing proportion of workers will be affected
by the additional HI payroll tax over time.

*Dedicated Revenues*

As required by the 2003 Medicare Modernization Act, the Trustees compare overall projected Medicare
expenditures with the program's "dedicated revenues"--principally HI payroll taxes, certain income taxes
on Social Security benefits, beneficiary premiums, and special State payments to Part D. The portion of
program costs financed by general revenues (rather than by "dedicated revenues") is projected to
exceed 45 percent in 2010. This result leads to a determination of "excess general revenue
Medicare funding" for the fifth consecutive year. Because this determination has been made in two
consecutive Trustees Reports, a "Medicare funding warning" is again triggered. The funding warning
indicates that the level of federal general revenues required to finance Medicare is an important
concern, but it does not signify that program benefits cannot be paid.

*Short and Long Term*

The changes in the Affordable Care Act bring the HI trust fund much closer to financial balance in both
the short range and the long range. However, additional policy initiatives are needed to ensure that the
HI Trust Fund meets the Trustees' test of short-range financial adequacy or the test of long-range
actuarial balance. The Trustees reported that the time gained by postponing the depletion of the HI
trust fund should be used to determine effective solutions to the remaining long-range HI
financial imbalance. We believe that solutions can and must be found to ensure the financial integrity of
HI and to reduce the rate of growth in Medicare costs, building on the strong measures enacted as part
of the Affordable Care Act.

The Medicare Trustees are Treasury Secretary and Managing Trustee Timothy F. Geithner, Health and
Human Services Secretary Kathleen Sebelius, Labor Secretary Hilda L. Solis, and Social Security
Commissioner Michael J. Astrue. Two other members are public representatives who are appointed by
the President, subject to confirmation by the Senate. Currently, these positions are vacant, and the
President's nominees await Senate confirmation hearings. CMS Administrator Donald M. Berwick, M.D.,
is designated as Secretary of the Board.

The report is available at: http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2010.pdf .