Medicare Trust Fund healthier. (Short Takes: News at Deadline).

The solvency of the Medicare Trust Fund has already been impacted by the improved economic conditions. The Fund's trustees report that the Hospital Insurance trust fund will remain solvent until the year 2008, based on the most probable economic and demographic assumptions. Last year, the trustees forecast that the fund would run out of money by the year 2001.

The trustees credited the combination of restrained expenditures and structural reforms accomplished by the Balanced Budget Act for extending the life of the trust fund, and cutting the projected 75-year actuarial deficit in half. The Balanced Budget Act also created the National Bipartisan Commission on the Future of Medicare, which is charged with developing effective solutions to the long-term financing problems. The commission held its first meeting on March 5, and is due to issue a report in 1999.

Enrollment in Medicare managed care plans will exceed 20 percent by the end of 1999 as a result of Medicare reforms in the Balanced Budget Act of 1997, according to Howard Veit, Managing Principal for Towers Perrin's health industry consulting practice. Medicare seniors will be able to choose from a wide array of health plan choices, Veit says, contributing to an increasingly retail-oriented health care system, while health care organizations compete aggressively to capture and retain market share.

Veit adds, "Medicare seniors will benefit from the competition. They will have more plans to choose from, more provider choice through larger hospital and physician networks, and a reduction or elimination of cost sharing. The number of plans that serve Medicare seniors will increase rapidly, including HMOs. PSOs, private fee-for-service plans, and medical savings accounts."

For health care providers, Veit predicts that one of the hardest decisions will be whether to take advantage of the Balanced Budget Act's provisions for PSO formation. And, if they do decide to form a PSO, the question will be whether to go it alone or enter into a partnership with other providers or payers. Veit says that providers left on the outside of Medicare+ Choice opportunities will face decreasing revenues, resulting from the freezing of hospital payments for 1998 under the DRG-based hospital prospective payment system. Most of the savings under the Balanced Budget Act are projected by the Health Care Financing Administration to come from slowing the rate of growth in the fee-for-service reimbursements to hospitals and physicians. Physicians, particularly specialists, will have a high degree of interest in their hospitals' approach to Medicare risk.

James A. Hawkins is Publisher of Healthcare Briefings, a newsletter available in print, on cassette, via fax, and on computer disk. He can be reached at 800/338-5486.