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Medicare outlook improves slightly, report says

Social Security remains unstable

Kathleen Sebelius said Medicare spending rose 1.7 percent a year from 2010 to 2012.

Kathleen Sebelius said Medicare spending rose 1.7 percent a year from 2010 to 2012.

WASHINGTON — The financial outlook for Medicare has improved because of a stronger economy and slower growth in health spending, and the financial condition of Social Security has not worsened but is still unsustainable, the Obama administration said Friday.

“The projections in this year’s report for Social Security are essentially unchanged from last year, and those for Medicare have improved modestly,” Treasury Secretary Jacob J. Lew said.

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The Medicare trustees — four federal officials and two public representatives — said in their annual report that the “modest improvement” in the outlook for Medicare’s long-term finances reflected lower projected spending for skilled nursing homes and private Medicare Advantage plans.

The administration said the outlook for the Medicare trust fund was brighter because of the 2010 health care law. The law squeezed nearly $500 billion out of Medicare over 10 years, in part by trimming payments to many health care providers, including nursing homes and private health plans.

But the number of Medicare beneficiaries will grow rapidly, to 73 million in 2025 from 52 million today, so paying for the program remains a huge challenge, administration officials said.

Older Americans stand to benefit from the slower growth in health spending. The standard Medicare premium paid by most beneficiaries will probably stay at the current level, $104.90 a month, next year, the trustees said in their report.

Under current law, the administration said, Medicare’s hospital insurance trust fund will be exhausted in 2026, and the Social Security Trust Fund will be depleted in 2033. The administration said in its 2012 report that the Medicare trust fund would run out of money in 2024, and the Social Security fund in 2033.

The trustees urged Congress to shore up the finances of both programs, but few lawmakers are clamoring for immediate action.

Social Security provides benefits to more than 57 million people, and an average of about 10,000 baby boomers become eligible each day. Payroll taxes and other revenue dedicated to Social Security would be sufficient to pay about three-fourths of promised benefits when its trust fund runs out, administration officials said.

The condition of the economy has improved in the past year, the government is collecting more revenue, and the growth of health spending has slowed. Kathleen Sebelius, the secretary of health and human services, said that Medicare spending per beneficiary had risen just 1.7 percent a year from 2010 to 2012. In the prior two decades, it rose more than 6 percent a year, on average.

One of the public trustees, Robert D. Reischauer, said “there is reason to be quite optimistic” that the slowdown in health spending will continue. One-third to half of the slowdown might be attributable to the recession and its aftermath, when people cut back on medical spending. But much of the remainder reflects efforts by insurers and health care providers to rein in costs, said Reischauer, a former director of the Congressional Budget Office.

The trustees’ reports are regarded as authoritative because they are produced with a minimum of political interference and incorporate the work of civil servants, including actuaries and economists who have been studying the programs for decades. In an appendix to the report, Paul Spitalnic, the acting chief actuary of Medicare, said that future costs could well be higher than indicated in the report. For example, current law would require a reduction of nearly 25 percent in Medicare payments to doctors next Jan. 1, “an implausible expectation,” Spitalnic said, and he noted that Congress had usually stepped in to prevent such cuts.

For many years, the growth of Medicare and of total national health spending has outstripped the growth of the economy.

The latest report indicates that Medicare spending per beneficiary will grow more slowly than the economy — the per capita gross domestic product — through 2017. After that, the trustees expect, Medicare will grow faster — about four-tenths of a percentage point more than the per capita GDP in 2037, for example.

The two programs accounted for 37 percent of all federal spending last year, and the Congressional Budget Office estimates that, under current law, their share will grow to 42 percent by 2023.

Republicans and Democrats in Congress say that Medicare and Social Security are financially unsustainable in their current forms. But they are far from agreement on changes that might be needed. Affluent Medicare beneficiaries already pay higher premiums — as much as $335.70 a month this year, and the trustees see this figure rising above $500 a month by 2022. As part of his budget, President Obama has proposed steeper increases for the most affluent.

More than 1 in 4 Medicare beneficiaries — 14.8 million people — are in private health plans, including Medicare Advantage plans offered by companies like UnitedHealth and Humana. Enrollment in such private plans has doubled in the last seven years. The trustees’ report forecasts slower growth, with enrollment reaching 20 million in 2030.

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