COVID strained Medicare trust fund, speeding up the financial crunch that's coming

While the delta variant of COVID-19 is straining Medicare's finances in 2021 -- as other strains of COVID did last year -- the federal government's health insurance program is still paying billions of dollars to cover medical expenses for seniors in hospitals, nursing homes, doctors' offices and rehab centers in South Florida and across the country.

It is projected to do so until 2026, when the trust fund that finances Part A of Medicare -- primarily inpatient hospitalization, skilled nursing and home healthcare -- is "depleted" and won't be able to cover all its expenses, according to the trustees who manage Medicare. Even then, experts say, Medicare will continue covering the needs of its patients in Part A and its other insurance plans.

Part A is financed principally by payroll taxes (FICA). And since the U.S. lost about 8.8 million jobs in 2020 due to the pandemic, according to the Bureau of Labor Statistics, Part A's main source of funding couldn't keep up with increased COVID-related expenses. These included large advance and accelerated payments to cover higher-than-projected hospitalizations, expanded home health services and costly medications to treat COVID-19.

Released at the end of August, the 273-page report from the trustees said the fund can pay only 91 percent of projected Part A expenses in 2026, a warning it first made in its report a year earlier. After that, the percentage will continually decrease unless reforms are made.

This fund -- which Medicare calls the Hospital Insurance Trust Fund (HI) -- logged 2020 expenditures of $402.2 billion, far outstripping its income of $341.7 billion, and used more than $60 billion of its assets (or reserves) to finance the gap. Its assets are being depleted each year.

This occurred even as some hospital-related costs decreased last year as non-essential surgeries and procedures were delayed. HI has reported deficits in all but two years since 2008 and, except for 2022, is projected to book more deficits this year and in the future.

Fund for Part B, C and D doing fine

By contrast, the trust fund that finances Medicare Part B (doctors' bills, outpatient care, medical supplies and preventive services ), Part D (prescription drugs) and a share of Part C (private insurance plans known as Medicare Advantage) had 2020 income of $558.1 billion, expenses of $523.6 billion and increased its assets (or reserves) from $108.8 billion at year-end 2019 to $143.3 billion at the end of 2020. The trustees said this fund's finances will remain "in balance" in the future.

This fund is called the Supplementary Medical Insurance Trust Fund (SMI).

Between the two funds, Medicare had total expenditures of $925.8 billion covering more than 62.6 million Medicare enrollees in 2020. This represents a 15.8 percent increase over the pre-COVID-19 expenditures of $799.4 billion in 2019.

Medicare not going bankrupt

While Medicare expenses are projected to increase in future years, the government health insurance is not going into bankruptcy.

The 2020 deficit of over $60 billion for Part A was covered by drawing down the fund's assets -- or reserves. These assets fell to $131.4 billion at the end of 2020 and will be exhausted by 2026, when the fund will be "depleted," the report said.

"Depleted" doesn't mean bankrupt. It means the HI fund needs to be fixed because it won't be able to pay all its bills in 2026 or in subsequent years. The fund will continue to receive income from payroll (FICA) taxes and other sources but its assets will be gone in five years and its income will not cover all its expenses.

"As we have noted before, Medicare is not 'going broke' or approaching 'bankruptcy,' yet some policymakers make this claim to, among other things, oppose current efforts to add dental, hearing and vision benefits to the program," David Lipschutz, associate director and senior policy attorney for the Center for Medicare Advocacy, said in an email response to questions from the Miami Herald. The CMA is a national, non-profit law organization promoting access to comprehensive Medicare coverage for the elderly and people with disabilities.

Indeed, the trustees' report, said: "While the COVID-19 pandemic has significantly affected Medicare short-term financing and spending, it is not expected to have a large effect on the financial status of the trust funds after 2024."

Still, Medicare confronts serious challenges that could limit its effectiveness even after the acute COVID-19 public health emergency diminishes, the trustees warned.

These challenges include a continuing deficit in funding Medicare Part A, a widening gap between the increasing number of beneficiaries and the number of workers who support Medicare through payroll taxes, plus higher costs for all plans as Medicare expands its services to current and future members.

What lies ahead for Medicare?

The trustees predicted a "small deficit" in the Part A fund this year as the economy recovers, and a surplus in 2022 as providers reimburse Medicare for the advanced payments it made last year. After that, however, the fund's finances will worsen.

Proposed solutions include cutting future benefits, raising payroll and other taxes, shifting payments from one Medicare program to another and raising the Medicare eligibility age, among others.

The trustees urged that "Congress and the executive branch work together with a sense of urgency" to resolve the HI fund issue, as well as other problems related to the medical and prescription drug programs.

But reaching a consensus in Congress -- where real Medicare reform must originate -- will not be easy.

Political differences over reforming Medicare

Democrats are pushing for an expansion of medical services to include dental, vision and hearing benefits that will add significant costs to Medicare. Republicans have called for reducing payments to Medicare providers and pushing for more Medicare Advantage plans, where coverage from private insurance companies is combined with Medicare.

While it is likely that the administration and Congress will somehow avoid a breakdown in politically popular Medicare services five years from now, it's not clear how soon they will act or what they will do.

"Congress has never allowed the trust fund to be depleted," Lipschutz said. "There are various ways Congress can address the shortfall -- through spending cuts, raising revenue or some combination of both."

How to fix Part A's finances

The Urban Institute, a non-profit research organization, published a paper in August 2021 offering recommendations by a panel of healthcare experts on how the Medicare Part A issue could be addressed.

They included:

Shifting all costs of home health services from Part A to Part B, for projected savings of about $6 billion per year.

Gradually increasing the Medicare payroll tax from 1.45 percent to 2.9 percent to raise an estimated $400 billion over 10 years.

Increasing Medicare taxes for high-income individuals and families to potentially raise an additional $7.7 billion per year for the HI fund. The Affordable Care Act already subjected individuals earning more than $200,000 per year and families earning more than $250,000 to an added 0.9 percent tax, which funded the HI trust fund. This new proposal would impose a 2 percent add-on tax for those with incomes of more than $1 million a year.

Subject all personal income to FICA taxes, which could raise $210 billion over a decade.

Other recommendations included limiting payroll tax deductions for employers; taxing "excessive profits" companies earned during the pandemic; implementing a claw-back on some Medicare Advantage program profits; reducing Medicare payments to post-acute care providers; combining Parts A and B; and raising the age of Medicare eligibility from 65 to 67, plus others.

Studies done by other organizations -- like the non-profit Kaiser Family Foundation -- offer some of the same recommendations.

South Florida hospitals and Medicare

Often criticized for excessive bureaucracy and red tape in processing claims, Medicare performed well in disbursing funds to South Florida hospitals during the pandemic, according to three local healthcare centers.

"Medicare went out of their way to expedite payments to us," said Carlos Migoya, CEO of the Jackson Health System, which runs seven local hospitals and has over 2,600 beds as the county's public hospital network. These payments -- which Medicare calls advanced and accelerated disbursements -- were vital to hospitals dealing with surges in COVID-19 patients in 2020.

Treating COVID-19 patients sharply increases hospital costs because they require a room with specialized equipment, specialized nursing and respiratory personnel and expensive medications. JHS also saw personnel costs skyrocket, as nurses and technical staff worked double shifts.

About 34 percent of JHS's total patient population is on Medicare.

"We thought there would be one or more COVID surges, but we didn't expect the delta variant surge would be so large," Migoya said in a Zoom interview, referring to the summer surge of new cases, hospitalizations and deaths spawned by the much more contagious delta variant.

Jackson's peak periods for COVID

Jackson registered its peak of 445 COVID-19 hospitalizations on July 23, compared to a 2020 peak of 485 on July 27.

The high levels of hospitalizations last year led Jackson to adjust some of its non-COVID services.

"We never shut down all elective surgeries; we reduced some that could be deferred," Migoya said. "A tumor may be elective now but in a few months, it could be fatal."

This year, the number of older patients with COVID-19 has been down, primarily because a large percentage of older residents are vaccinated, he said. About 70 percent of the county's total population was fully vaccinated by the end of September, according to the Florida Department of Health.

But the delta variant has affected younger, unvaccinated people. At the end of September, 80 to 90 percent of new COVID patients in Miami-Dade hospitals were unvaccinated, according to the county's COVID dashboard.

Shortages of nurses and technical staff continue to be a serious challenge for JHS.

"Because of the pandemic, a lot of them have left, or retired or taken other jobs. We have about 4,000 nurses here and typically hire 400 to 500 per year. This year we'll need 1,000, along with respiratory technicians and other specialized personnel."

JHS also received COVID-19 assistance under the CARES Act and other federal provisions, and Migoya praised Gov. Ron DeSantis for supplying temporary nurses when JHS most needed them last year.

Cleveland Clinic Florida in Weston (230 beds) said that it received advanced payments from Medicare to assist in caring for COVID-19 patients last year, and has already repaid the advances.

"We have not experienced any issues with the flow of these payments," Scott A. Samples, a Cleveland Clinic spokesperson, said in an email to the Herald.

Cleveland Clinic's COVID patients surge in summer

During July and August, Cleveland Clinic's hospitals in Weston and the Treasure Coast received twice as many COVID-19 cases requiring hospitalization than at any other previous point in the pandemic.

"Since the beginning of September, we have seen a continued reduction in the number of COVID-19 cases requiring hospitalizations," Samples added. "This has allowed us to resume non-emergency surgeries and procedures at our facilities across the Cleveland Clinic Florida region. "

Baptist saw multiple peaks in COVID patients

Baptist Health South Florida, the largest healthcare group in the region, said that it has discharged approximately 21,000 patients treated for COVID-19 since the pandemic began early last year across all 11 of its hospitals.

"As a health system, we have seen several peaks in the number of patients with COVID-19 seeking care at our hospitals," said Georgi Morales Pipkin, Baptist's director of communications, in an email.

In July 2020, Baptist at its peak was caring for 831 COVID-19 patients. In August 2021, the peak was 970 COVID patients. At the end of September 2021, the number of COVID patients had declined to 195.

"The biggest financial impact of COVID-19 for our organization was during the spring of 2020, when the onset of the pandemic led to mandated pauses and significant delays in surgeries, screenings and other procedures," she said. "And many patients were not seeking routine care."

The combination of high costs for COVID-19 treatment and lower revenues for non-COVID treatments put a strain on finances at Baptist and other hospitals.

"In 2020, Medicare provided accelerated and advanced payments to hospitals like ours, which supplied relief as we worked through the early challenges of the COVID-19 public health emergency," Pipkin said. "This was very beneficial as we navigated through a time of great anxiety and uncertainty for our community. We are currently in the process of repaying these advance [Medicare] payments."

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