Trustees Report's 5 Reasons Why MSP Program Will Get More Aggressive

Want to know why Medicare will continue to get even more aggressive on Secondary Payer issues? The 2021 Medicare Trustees Report provides top 5 reasons.

Medicare is health insurance for the elderly and disabled. Medicare recently published its 56th Medicare's Trustees Report, providing an update on the economic status of the Medicare trust funds, which oversee all dollars in and all dollars out of the Medicare system. Overall, the Medicare trust funds lost $26 billion in 2020. Although Medicare Part B (physician coverage) saw a surplus of $34 billion, and Medicare Part D (prescription coverage), saw a surplus of $1 billion, Medicare Part A (hospital coverage) saw a loss of $60 billion just in 2020 alone.

All of Medicare took in $900 billion in 2020, but spent $926 billion ($402 billion in hospital expenses, $419 billion in physician expenses, and $105 billion in prescription expenses). The most expensive line was Part C, private plans like Medicare Advantage Plans, costing $136 billion in hospital charges, and $181 in physician charges, for a grand total of $317 billion in 2020.

So, bottom line is that the hospital trust fund went from $195 billion in reserves in 2019 to $134 billion in 2020, the physician trust fund went from $100 billion in reserves in 2019 to $133 billion in 2020, and the prescription trust fund went from $9 billion in reserves in 2019 to $10 billion in 2020. Altogether, the Medicare trust funds had $303 billion in assets at the end of 2019; assets at the end of 2020 were down to $278 billion.

So, why is any of this important to liability, no-fault, and work comp plaintiffs, payers, insurers, self-insureds, attorneys, adjusters, and settlement planners? Simply put, Medicare continues to be in short and long term financial problems. As a result, expect Medicare to continue to do all it can under the law to make sure a primary or responsible party pays for claim related expenses so that Medicare can remain solvent and continue to provide promised statutory benefits.

Based on these numbers, I believe Medicare will continue to get more and more aggressive with its secondary payer program. We are already on notice that $1,000 per day, per file civil money penalties are coming to mandatory insurer reporting, that Medicare and its conditional payment recovery contractors, the Commercial Repayment Center (CRC) and the Benefits Coordination Recovery Center (BCRC), are now regularly referring unpaid conditional payments to the US Department of Treasury for collection, and the US Department of Justice for prosecution, and that the Centers for Medicare and Medicaid Services (CMS) will soon be publishing proposed code of federal regulations on how/when to take Medicare's future interests in automobile, mass tort, medical malpractice, nursing home, slip and fall, trucking, products liability, no-fault, and workers compensation claims.

So, want to know why Medicare will continue to push hard and get even more aggressive on Secondary Payer issues? Based on the 2021 Medicare Trustees Report, here are my top 5 reasons:

• Less Workers Per Medicare Beneficiary
• Explosive Growth in Medicare Enrollment
• Continuing Drop is Trust Fund Balance
• Limited Income, Higher Expenditures, and Diminishing Trust Fund Assets
• Continuing Growth in Private Health Plan Enrollment

Less Workers Per Medicare Beneficiary Creates Huge Problems

In my humble opinion, if there is one graph in the 2021 Medicare Trustees Report that depicts the financial problems with the Medicare Hospital Insurance Trust Fund (HI), is the projected ratio of workers per HI beneficiary from 1980 to 2095. As figure III.B4 indicates, the ratio was about 4 workers per beneficiary from 1980 through 2008. It began to decline initially due to the recession but then declined further due to the retirement of the baby boom generation. While every beneficiary in 2020 had about 2.9 workers to pay for his or her HI benefit, in 2030 under the intermediate demographic assumptions there would be only about 2.5 workers for each beneficiary. This ratio would then continue to decline until there are only 2.2 workers per beneficiary in 2095. This reduction implies an increase in the HI cost rate of about 30 percent by 2095, relative to its current level, solely due to this demographic factor.

Over the last 35 years the total number of Medicare beneficiaries approximately doubled, and the Trustees expect the total to increase by 43 percent over approximately the next 35 years. During this same historical period, the number of covered workers also increased by about 46 percent, but the Trustees project this number to increase much more slowly, about 14 percent, over the next 35 years. This demographic shift has significant implications for Medicare revenue, and the ability of the Medicare trust funds to bear the costs of the care and treatment promised under the law today.

This is important to all Medicare trust funds, but especially gut wrenching to the HI Trust Fund, as its entire funding comes from income tax contributions from current workers to finance hospital coverage for current hospital insurance Medicare Part A coverage. With fewer workers contributing, and more beneficiaries coming on every day, the mathematics are disastrous, adding significant economic pressure to workers, beneficiaries, providers, hospitals, Medicare, and the entirety of the federal government.

Explosive Growth in Medicare Enrollment is Driving MSP Programs

In 1970, there were 20.4 million Medicare beneficiaries in the U.S. A decade later, in 1980, there were 28.5 million Medicare beneficiaries in the U.S., about 8 million new beneficiaries in that 10 year span. By 1990, there were 34.3 million Medicare beneficiaries in the U.S., about 6 million new beneficiaries in that 10 year span. By 2000, there were 39.7 million Medicare beneficiaries in the U.S., a little over 5 million new Medicare beneficiaries in that 10 year span. Not bad; exactly what had been expected. And most significantly, exactly what the system had planned for from an economic standpoint.

By 2010, there were 47.8 million Medicare beneficiaries in the U.S., and by 2020, a whopping 62.7 million Medicare beneficiaries in the U.S. In a 20 year span, we went from 39.7 million Americans on Medicare to 62.7 million Americans on Medicare, that is 23 million new Medicare beneficiaries- averaging more than a million new beneficiaries every year over a 20 year period. And as the last graph indicated, without a new worker to replace the newly retired Medicare beneficiary.

Our immediate future does not look any better. As Table V.B3 in the 2021 Medicare Trustees Report estimates, by 2030, there will be 77.4 million Medicare beneficiaries in the U.S., by 2040, there will be 83.8 million, and by 2050, there will be 87 million Medicare beneficiaries in the U.S. It is no wonder Medicare continues to get more and more aggressive with its Medicare Secondary Payer program. It is no wonder that $1,000 per day, per file civil money penalties are coming to mandatory insurer reporting, that Medicare and its conditional payment recovery contractors, the Commercial Repayment Center (CRC) and the Benefits Coordination Recovery Center (BCRC), are now regularly referring unpaid conditional payments to the US Department of Treasury for collection, and the US Department of Justice for prosecution, and that the Centers for Medicare and Medicaid Services (CMS) will soon be publishing proposed code of federal regulations on how/when to take Medicare's future interests in automobile, mass tort, medical malpractice, nursing home, slip and fall, trucking, products liability, no-fault, and workers compensation claims.

Continuing Drop in Trust Fund Balance With Depletion Expected in 2026

Plain and simple, the hospital insurance trust fund has been in trouble for years and continues to be in trouble today and for the foreseeable future. Expenditures from the HI trust fund exceeded income each year from 2008 through 2015. In 2016 and 2017, however, there were fund surpluses amounting to $5.4 billion and $2.8 billion, respectively. In 2018, 2019, and 2020, expenditures again exceeded income, with trust fund deficits of $1.6 billion, $5.8 billion, and $60.4 billion, respectively. Although the large deficit in 2020 was mostly due to accelerated and advance payments to providers due to COVID-19; deficits are projected to return in 2023 and persist for the remainder of the projection period, requiring redemption of trust fund assets until the trust fund’s depletion in 2026.

Based on the 10-year projection shown in Figure II.E1, the HI trust fund does not meet statutory standards test because estimated assets are below 100 percent of annual expenditures and are not projected to attain this level under the intermediate assumptions. As has been the case the last 4 years, this outlook indicates the need for prompt legislative action to achieve financial adequacy for the HI trust fund throughout the short-range period.

There is substantial uncertainty in the economic, demographic, and health care projection factors for HI trust fund expenditures and revenues. Accordingly, if Medicare beneficiary COVID-19 hospitalizations continue to rise and continue to elongate, the date of HI trust fund depletion could differ substantially and asset depletion could occur as early as 2024. Therefore expect Medicare to get aggressive on COVID-19 claims in which a primary payer may be responsible, including denied workers compensation claims that end up settling.

Limited Income, Higher Expenditures, and Diminishing Trust Fund Assets

As indicated in Table V.B1, Medicare expenditures have increased rapidly during most of the program’s history. From 1985 through 2020, expenditures grew at an average annual rate of 7.6 percent, and they are projected to increase at an average annual rate of 6.2 percent from 2021 through 2030.

Through most of Medicare’s history, trust fund income has kept pace with increases in expenditures. However, as less workers per Medicare beneficiary finance current Medicare beneficiary expenditures, trust fund income has not kept pace with such increases in expenditures, and is not predicted to keep pace with such expenses in the future. In this year’s report, the Trustees estimate that, from 2021 through 2030, total Medicare income will increase at an average annual rate of 6.0 percent, which is slightly lower than the 6.2 percent growth in expenditures.

Medicare revenues tell this story with much more clarity. General revenues represented 47 percent of total non-interest income to the Medicare program in 2020 and have constituted the largest share of Medicare financing since 2009. Payroll taxes were the next largest source of overall financing at 34 percent. Beneficiary premiums were third, at 15 percent.

Importantly, projected tax revenues fall short of projected expenditures in all future years. In contrast, premium and general revenues are predicted to keep pace with expenditure growth. Therefore, in the absence of legislation, tax income would represent a declining portion of total Medicare revenues. In 2026, for example, the projected year of depletion of the HI trust fund, currently scheduled payroll taxes would represent about 31 percent of total non-interest Medicare income. General revenues and beneficiary premiums would equal about 46 and 17 percent, respectively.

It is a simple mathematical equation: taxpayer limited income contributions + annual medical higher expenditures + diminishing trust fund assets = use of Medicare Secondary Payer program to mitigate losses.

Continuing Growth in Private Health Plan Enrollment and Costs

The foundation of the current private health program was established in 2003, when most of the private plans were renamed as Medicare Advantage (MA) plans and all private health insurance coverage options available through Medicare were formally designated as Part C. Since then, there has been a continuous and substantial increase in the prevalence of MA enrollment.

Since 2006, payments have been based on competitive bids and their relationship to corresponding benchmarks, which are based on an annually developed ratebook. Also, rebates were introduced and are used to provide additional benefits not covered under Medicare, reduce cost sharing, and/or reduce Part B or Part D premiums. 

The enrollment data in Table IV.C1 shows that the number of Medicare beneficiaries enrolled in private health plans under Part C has increased substantially in recent years. Between 2011 and 2020, private plan enrollment grew by 12.7 million or 103 percent, compared to growth in the overall Medicare population of 28 percent for the same period. In 2020, about 40 percent of eligible Medicare beneficiaries were enrolled in private Part C health plans. The Trustees expect continued increases in private plan penetration rates between 2021 and 2030, with the estimated proportion of beneficiaries in such plans reaching about 49 percent by 2030.

In 2020, with 25.1 million beneficiaries, Part C costs included $136 billion in hospital charges, and $181 in physician charges, for a grand total of $317 billion, or about $12,869 per beneficiary (as compared to $14,348 per beneficiary for Parts A, B, and D). By 2030, with 38.1 million expected beneficiaries, Part C costs are predicted to be $800 billion, or about $21,060 per beneficiary (as compared to $23,572 per beneficiary for Parts A, B, and D).

With the PAID Act, the latest amendment to the Medicare Secondary Payer law, about to change the way and manner in which primary payers receive information about Medicare Advantage (MA) and Prescription Drug (PD) plans, starting December 2021, primary payers will have the ability to know with certainty the identity of the MA and PD, as well as the conditional payments such plans may have paid resulting from or related to your liability, no-fault, or work comp claim.

Conclusion

The Medicare trust funds lost $26 billion in 2020. The trust funds went from $303 billion in assets at the end of 2019 to $278 billion in assets at the end of 2020. The Hospital Insurance Trust Fund in particular is in danger, as it is now predicted to be exhausted by 2026. Simply put, Medicare continues to be in short and long term financial problems. As a result, I expect Medicare to continue to do all it can under the law to make sure a primary or responsible parties pay for claim related expenses so that Medicare can remain solvent and continue to provide promised statutory benefits.

Therefore, expect Medicare to continue to get more and more aggressive with its secondary payer program. We are already on notice that $1,000 per day, per file civil money penalties are coming to mandatory insurer reporting, that Medicare and its conditional payment recovery contractors, the Commercial Repayment Center (CRC) and the Benefits Coordination Recovery Center (BCRC), are now regularly referring unpaid conditional payments to the US Department of Treasury for collection, and the US Department of Justice for prosecution, and that the Centers for Medicare and Medicaid Services (CMS) will soon be publishing proposed code of federal regulations on how/when to take Medicare's future interests in automobile, mass tort, medical malpractice, nursing home, slip and fall, trucking, products liability, no-fault, and workers compensation claims.

Based on the 2021 Medicare Trustees Report, the top 5 reasons for expected continued aggressive Secondary Payer programming is the fact we continue to have less workers per Medicare beneficiary, continuing growth in Medicare enrollment, an ongoing and precipitous drop is trust fund balance, the combination of limited income, higher expenditures, and diminishing trust fund assets, and explosive growth in private health plan enrollment and costs.

About Rafael Gonzalez, Esq.

Rafael is a partner in Cattie & Gonzalez, PLLC, a national law firm focusing its practice on federal Medicare/Medicaid secondary payer compliance and legal issues. In addition to assisting clients with Medicare mandatory reporting, conditional payments, and set asides issues, he helps clients with Medicaid third party liability liens and Medicaid special needs trusts issues. He has over 35 years experience in the liability, no-fault, and work comp insurance industry. You can connect with him on LinkedIn, Twitter, Facebook, and YouTube, or reach him at rgonzalez@cattielaw.com, 844.546.3500, or www.cattielaw.com.