Medicare in Good Health - for Now

Medicare is in much better health and has a somewhat longer life expectancy than previously expected, according to the 2014 Medicare Trustee's report released today.

Spending on Medicare's Part B program, which covers mainly doctors' services and outpatient care, has significantly slowed, the report says. That's good news for the 59 million people on Medicare, because it means that the standard Part B premiums, which are always pegged to the previous year's costs, are expected to stay at the same level in 2015 as they were in 2013 and 2014 - $104.90 a month.

The costs of Medicare's other side, the Part A hospital insurance program, are also lower than previously projected, leading to a revised estimate of how long it will take the program to run out of funds to cover all costs. Last year's trustees report set the date at 2026. Now it's been pushed back a further four years, to 2030.

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Still, the prognosis is one of only guarded optimism. "Some may be tempted to conclude that Medicare may be healing its financial maladies all by itself, and that no further action would be needed," trustee Robert Reischauer said at the report's unveiling at the Treasury Department. "That would not be a prudent conclusion to reach." And while describing the program as "fundamentally secure," Treasury Secretary Jack Lew warned that "manageable adjustments should be made now rather than drastic changes later."

The reasons for Medicare's lower costs are not precisely known, but experts point to changes introduced by the 2010 Affordable Care Act, designed to make Medicare more efficient; the sharp drop in hospital readmissions as a result of regulation; and some blockbuster prescription drugs now replaced by less-expensive generic versions.

While lower costs are hopeful, it isn't clear how long the trend will continue. Medicare actuaries expect spending to rise again in future years, at least in part because of high enrollments from the boomer generation, who are now becoming eligible for Medicare at a rate of 10,000 a day.

In recent years, Medicare has become a hot political potato, with many cost-saving proposals put forward in Congress but not acted upon.

"Some in Washington still hold on to the mistaken belief that cutting benefits or asking seniors to pay more is the best way to address Medicare's financial challenges," AARP Executive Vice President Nancy LeaMond responded to the report, "even though a typical senior has an annual income of just $20,000 and already pays thousands of dollars in out-of-pocket health care costs." She added that "common sense changes" - such as better coordination of care, clamping down on high drug prices, and more efforts to weed out waste and fraud - would improve care and ensure Medicare's longevity for today's and future generations.