Millions Set to Lose Health Coverage

Millions Set to Lose Health Coverage

By Yuval Rosenberg and Michael Rainey
Friday, March 31, 2023

Hooray for Friday! A reminder: Tomorrow is April Fools’ Day, but we’re not fooling around here. We’ve got news about Social Security, Medicare and Medicaid, so read on.

Social Security Faces Funding Crisis in 2033: Report

As America ages, retirees on Social Security face steep automatic cuts starting in 2033 while the trust fund for Medicare’s hospital coverage is on pace to be exhausted by 2031, according to annual reports by the programs’ trustees released on Friday.

Social Security’s old age and survivors insurance trust fund is now projected to run out one year sooner than projected as of last year, with ongoing income sufficient to pay only 77% of benefits in 10 years’ time. If the programs’ retirement and disability trust funds were combined, they would be unable to pay full benefits as of 2034, one year earlier than projected last year. After that, benefits would face a 20% cut unless Congress acted to close the gap.

The worsening outlook is the result of weaker economic projections, with expectations for gross domestic product and labor productivity lowered by about 3% compared to last year’s forecast.

Medicare’s hospital trust fund, meanwhile, is expected to be able to pay 100% of scheduled benefits for three more years than projected last year. Once the Medicare trust fund is tapped out, the program will only be able to pay 89% of benefits.

The slight improvement in the outlook for Medicare is mostly the result of lower projected health care spending based on newer data, the report says. Spending on prescription drugs in Medicare is projected to be significantly lower as a share of the economy as a result of the Inflation Reduction Act passed by Democrats last year.

“Administration officials said the coronavirus pandemic ‘dramatically affected’ the Medicare program’s finances for a variety of reasons,” The Washington Post’s Jeff Stein and Amy Goldstein noted. Those reasons include “how much care people are getting inside hospitals, the fact that Americans are not yet seeking as many medical services as before covid and the reality that the nation’s excess deaths from covid involved many people with other ailments who had been getting expensive medical treatment that now won’t be needed.”

Why it matters: The updated projections highlight the ongoing financial troubles of the popular programs at a time when they have both been in the political spotlight. The trustees urged Congress to look at ways to close the funding shortfalls, but their reports come as both Democrats and Republican leaders have vowed to leave the popular programs untouched in discussions this year about spending cuts and the national debt limit.

“Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls,” the trustees said in the report. “With each year that lawmakers do not act, the public has less time to prepare for the changes.”

In his budget request this month, President Joe Biden proposed changes that the White House said would extend the solvency of Medicare’s trust fund for at least 25 years. His plan, among other provisions, would raise the Medicare payroll tax rate from 3.8% to 5% on annual income above $400,000 and close a loophole that allowed some business owners to avoid the tax. Biden also called on lawmakers to allow Medicare to negotiate the prices of more drugs and expand a newly enacted rebate requirement for drug companies.

The administration did not include a plan to extend Social Security, though — a decision meant to emphasize Biden’s commitment to not cut the program and draw a contrast with many Republicans who have in the past supported plans to cut both Social Security and Medicare, and in some cases continue to do so.

Here are some reactions to the latest report.

Doing nothing is not a good option: Budget experts and advocates warned that lawmakers can’t keep ignoring the financial challenges both Social Security and Medicare face. “Anyone who pledges not to touch Social Security is endorsing a 20 percent across-the-board cut in benefits. Refusal to fix Medicare means supporting major disruptions in health services,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “It’s time for our leaders to take their heads out of the sand and put them together to develop real and lasting solutions to save Social Security and Medicare.”

AARP CEO Jo Ann Jenkins offered a similar message: “Today’s Social Security and Medicare Trustees reports reinforce that while they are financially strong today, both programs face long-term funding needs, and Congress must act to find solutions to ensure Social Security and Medicare will be there for the next generation and into the future.

Social Security advocates say the programs don’t have to be cut: “The takeaway from this report is that whether to expand or cut Social Security’s modest but vital benefits is a question of values, not affordability,” said Nancy Altman, president of Social Security Works, a left-leaning think tank. “While some political elites still cling to the idea of a so-called ‘balanced’ package that includes benefit cuts, such a plan will not succeed because it is toxically unpopular among the American people.”

Altman said Congress should look to expand benefits while closing the Social Security shortfall. Her group said that the program is projected to cost about 6% of GDP some 75 years from now, far less than Germany, France and other industrialized countries spend on similar programs.

“The threat to Social Security is not the unremarkable and easily addressed projected shortfall starting in the 2030s,” the group said. “The real threat is the hostility of Republicans in Congress.”

The nation’s fiscal outlook depends on the future of these programs: As Alan Rappeport and Margot Sanger-Katz write in The New York Times, “addressing America’s fiscal problems is difficult without making changes to the social safety-net programs. The Congressional Budget Office said in February that spending growth for Medicare and Social Security is rapidly outpacing the growth in federal tax revenues over the next 10 years and that by 2033 the federal government will be spending as much on Social Security alone as it does on all discretionary spending — military and otherwise — combined.”

Millions Set to Lose Coverage as Medicaid Purge Begins

States can start removing people from Medicaid and the Children's Health Insurance Program on April 1 as Covid-era rules come to an end, kicking off a process that is expected to reduce participation in the programs by more than 15 million people nationwide.

During the pandemic, temporary federal rules prohibited states from removing people from Medicaid and CHIP, even if they no longer qualified or had failed to meet local requirements. As a result, the number of participants soared, reaching more than 91 million by October 2022 — an increase of roughly 20 million relative to the start of the pandemic, according to the Kaiser Family Foundation. But even before President Joe Biden indicated that the Covid-19 emergency would be coming to an end on May 1, Congress decided to end the so-called continuous enrollment provision on April 1.

Five states — Arizona, Arkansas, Idaho, New Hampshire and South Dakota — say they will start ending coverage right away. Other states will move more slowly, but the purge is expected to be completed in most states within the next 14 months.

In some states, the reduction will be quite significant. In Arkansas, for example, officials say that 587,000 people currently on Medicaid no longer qualify — nearly half the state’s total. State officials expect to complete the purge of its health care rolls in just a few months.

Worries about pushing too hard: Federal officials are concerned that some states will move too aggressively to deny Medicaid coverage, especially in places where public-funded services are demonized as socialism or welfare.

All states are now required to send monthly reports on their efforts to purge their health care rolls to federal officials. The data will include the number of current participants who were removed from Medicare and CHIP, as well as a breakdown of the reasons for doing so. The information will be public, though there will be delays, with the first reports not becoming available until summer. Health and Human Services Secretary Xavier Becerra is empowered to intervene if states violate the rules governing the process.

Even under normal conditions, though, state agencies eliminate many people from their health care programs for reasons that have more to do with red tape than actual eligibility. As Washington Post columnist Catherine Rampell points out, nearly half of the people who are expected to lose their Medicaid coverage in the coming months will be eligible to stay in the program. “Among children, the share is even higher: 72 percent of children expected to lose their Medicaid or CHIP coverage will technically still be eligible for Medicaid or CHIP,” Rampell writes.

Inflation Eases, but Probably Not Enough for the Fed

Consumer prices rose again in February, the Commerce Department reported Friday, as the personal consumption expenditures price index, a key measure of inflation, went up by 5% on an annual basis and 0.3% on a monthly basis. Both readings were below the levels recorded in January, with the monthly rate falling sharply by half.

Another measure of inflation closely watched by the Federal Reserve — the core PCE rate, which leaves out volatile food and fuel prices — saw a smaller increase, rising 4.6% in February on annual basis, less than expected. The annual core rate for the previous month was revised lower, as well, down to 4.6%, the smallest increase since October 2021.

Overall, the data suggest that upward pressure on prices is easing, though at a sluggish pace.

Inflation is “coming down very slowly and from a very high level,” economist Alex Pelle of Mizuho Americas told CNN. “You get a lot of month-to-month volatility, but when you average it out, what you see is that we’re not getting worse, we’re probably getting a little better but not better fast enough for markets and probably not as quickly as the Fed had anticipated a year ago.”

What it means for the Fed: Most analysts expect the Fed to raise its benchmark interest rate by 25 basis points at its next meeting in early May, and Friday’s inflation report does little to change that view.

“While the Fed has been acknowledging that stress in the banking system will be an additional headwind for the economy and could potentially further slow inflation, today’s data doesn’t make us think that the Fed would pause in May,” Chris Zaccarelli, chief investment officer with the Independent Advisor Alliance, told Barron’s.

Still, the fact that inflation is easing indicates that things are moving in the right direction, however slowly. The latest numbers boost the hope that the Fed is nearing the end of its rate hike campaign and that the expected increase in May could be its last.


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