Medicare Trustees Estimate Hospital Trust Fund To Become Insolvent by 2020
Medicare's financial outlook has "improved slightly," and its hospital trust fund will be insolvent by 2020, one year later than previously projected, according to the Medicare trustees' annual report for 2005, USA Today reports (Welch, USA Today, 3/24). The trustees pushed back the insolvency date for the hospital trust fund by one year because of higher-than-anticipated tax revenue and slightly lower spending, the Los Angeles Times reports (Havemann, Los Angeles Times, 3/24).
By 2020, Medicare will be able to pay only 79% of what it owes in benefits, slightly down from the estimate in 2004, the report said (Shaw, Baltimore Sun, 3/24). Total hospital trust fund income, including interest, will exceed expenditures through 2012 (Koffler, CongressDaily, 3/23).
The report also said:
- Medicare is projected to spend more this year than it will collect from payroll taxes (Los Angeles Times, 3/24).
- Monthly Medicare Part B premiums are projected to increase by 12% next year to $87.70 following a 17% increase this year to $78.20 (Rosenbaum, New York Times, 3/24).
- Costs to Medicare's trust fund for outpatient care and prescription drugs will increase fourfold by 2024 (Ip/Calmes, Wall Street Journal, 3/24).
Social Security's financial outlook worsened slightly last year, prompting trustees to predict the program's insolvency in 2041, one year earlier than previously estimated (USA Today, 3/24). "Medicare's financial difficulties come sooner -- and are much more severe -- than those confronting Social Security," the trustees wrote in their report.
They added that the two programs together will make up about 14.5% of the U.S. economy by 2040, up from 7% today (Dinan, Washington Times, 3/24). According to the report, Medicare and Social Security by 2024 are expected to be roughly equal in size, but Medicare spending by 2079 will be twice Social Security spending (Stein, Boston Globe, 3/24).
In discussing the report's conclusions, public trustees Thomas Saving, an economist at Texas A&M University, and John Palmer, former dean of the Maxwell School at Syracuse University, "broke with the Bush administration's trustees" to emphasize the need for reform to Medicare, instead of Social Security, the Washington Post reports.
They wrote, "The financial outlook for Social Security has improved marginally since 2000. In sharp contrast, Medicare's financial outlook has deteriorated dramatically over the past five years and is now much worse [than] Social Security's."
In their comments, Saving and Palmer attributed the overall deterioration in Medicare's finances to rising medical costs and the addition of the Medicare prescription drug benefit. At a briefing Wednesday, Saving presented data showing Medicare's total unfunded liability at $65.4 trillion. According to the Post, the new Medicare prescription drug benefit has an unfunded liability of $18.2 trillion "projected out infinitely."
Saving said, "The way to solve a problem in the future is not to add benefits to make it more underfunded" (Weisman, Washington Post, 3/24).
Palmer said of the data in the report, "What's changed is Social Security has improved marginally and Medicare has gone in the tank" (Wall Street Journal, 3/24).
The three Bush administration trustees -- Treasury Department Secretary John Snow, HHS Secretary Mike Leavitt and Department of Labor Secretary Elaine Chao -- "chose to emphasize Social Security's problems almost exclusively at the report's release," according to the Post.
Palmer and Saving made their comments at a briefing on Capitol Hill separate from the event to release the report. In an interview, Saving said that he and Palmer were not invited to the report's release, the Post reports. But Treasury Department spokesperson Robert Nichols said all trustees were welcome at the report's release (Washington Post, 3/24).
Snow and Leavitt on Wednesday defended the Bush administration's focus on Social Security reform instead of Medicare. Snow said, "The reason we're dealing with Social Security now is that it cries out for answers."
Leavitt said it is clear that changes should be made to both Medicare and Medicaid, but lawmakers have time to allow efforts to reduce program costs to take effect before enacting large-scale changes (Baltimore Sun, 3/24). Leavitt said that the new Medicare law contains measures to increase private competition in the program and lower costs (Washington Post, 3/24).
He said, "Medicare modernization was not just about adding prescription drugs, though that was an important step. It's also about change in the culture to one of prevention, where people are beginning to think about health and wellness, not just healing" (Washington Times, 3/24).
According to the Post, the projected savings were not captured in the new trustees' report, which includes more than $1.1 trillion in costs related to the new drug benefit through 2014 and an unfunded obligation of the government through 2079 of $8.7 trillion.
Leavitt said, "I would do nothing to minimize the dilemma we face in the future with Medicare" (Washington Post, 3/24). He added, "We are going to have to deal with the realities of Medicare in the same way we are now dealing with the realities of Social Security" (Washington Times, 3/24).
Allan Hubbard, director of the National Economic Council, said Bush "recognizes Medicare is a big problem," and he "intends to deal with that. We need to get Social Security done first" (Wall Street Journal, 3/24).
Senate Finance Committee Chair Chuck Grassley (R-Iowa) said, "Based on the report, Congress ... needs to examine ways to make the Medicare program more effective" (Washington Post, 3/24).
Sen. Max Baucus (D-Mont.) said, "The Social Security trust fund is not in a crisis -- it's clearly a major challenge, but it is not a crisis. Medicare is a crisis" (Baltimore Sun, 3/24).
AARP Policy Director John Rother said, "Many seniors are going to be facing sticker shock in terms of the cost of their health care" this year (New York Times, 3/24).
Bruce Bartlett, a commentator with the National Center for Policy Analysis, said, "The problem is, [the Bush administration has] got the cart before the horse. They've made Medicare vastly worse, and now they're saying to be responsible we have to take on Social Security. It's utterly illogical" (Washington Post, 3/24).
The report is available online.
- "The Retiree Math War" (Russell Chaddock, Christian Science Monitor, 3/24).
- "Bad News on Social Security" (Neikirk, Chicago Tribune, 3/24).
- "Trustees See a Gloomy Future for Social Security, Medicare" (Roth, Houston Chronicle, 3/24).
- "Outlook a Bit Worse for Social Security" (Eichel, Philadelphia Inquirer, 3/24).
- "New Social Security Solvency Numbers Don't Change Debate" (St. Petersburg Times, 3/24).
NPR's "All Things Considered" on Wednesday reported on the trustees' report. The segment includes comments from Leavitt; Peter Orszag, a senior fellow for economic studies at the Brookings Institution; and Snow (Ydstie, "All Things Considered," NPR, 3/23). The complete segment is available online in RealPlayer.
In addition, NPR's "Talk of the Nation" on Wednesday discussed the trustees' report. The segment includes comments from Jonathan Weisman, financial reporter for the Washington Post (Conan, "Talk of the Nation," NPR, 3/23). The complete segment is available online in RealPlayer.