MedicareTrustees Predict Part A Solvency Until 2029

The Medicare Part A trust fund will not run out of money until 2029, four years later than estimates a year ago, the program's trustees said yesterday in their annual report. The Wall Street Journal reports that in spite of the more positive forecast, the program is "still going broke" (McKinnon, Wall Street Journal, 3/20). Medicare Part A, the Federal Hospital Insurance Trust Fund, funds hospital, home health, skilled nursing facility and hospice care for Medicare beneficiaries. The annual report, issued by a board of six Medicare trustees -- including Treasury Secretary Paul O'Neill, Labor Secretary Elaine Chao, HHS Secretary Tommy Thompson, Acting Social Security Commissioner William Halter and two presidentially appointed scholars -- attributed the improved outlook to "stronger-than-expected economic growth and lower-than-expected program costs." Last year, "robust" economic expansion prompted an increase in payroll tax revenues, the "main source" of funding for Medicare Part A. According to the report, Medicare spent less than expected last year due to "slow increases in health care costs generally, continuing efforts to combat fraud and abuse in the Medicare program" and reductions in the use of nursing homes and in the average "severity and complexity" of hospital patients' illnesses (Pear, New York Times, 3/20). While the trustees called the short-term financial status of the trust fund "favorable," with Medicare Part A income exceeding spending by $36.1 billion last year -- the third consecutive year of surplus -- they predicted that income will "fall short" of spending in 20 years. They added that the program could use trust fund assets to pay benefits for an additional eight years ("2001 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund," 3/19). In addition, the trustees "sharply increased" their estimates of long-term health care costs, expressing concern that Medicare expenses "were growing faster than the economy as a whole" (New York Times, 3/20). The trustees added that by 2029, the government would likely have to "slash" benefits, raise taxes or do both to fund Medicare Part A (Wall Street Journal, 3/20).

According to the report, Part A payroll tax income "would meet only a declining share of expenditures." Tax income would equal 112% of expenditures in 2001 but would begin to fall short of expenditures "by a rapidly growing margin" after 2015. In 2029, tax revenues would account for 68% of costs. The trustees added that Medicare Part A "fails by a wide margin" to meet their long-range test of "close actuarial balance." To achieve an actuarial balance over the next 75 years, the report said that the trust fund would have to decrease outlays by 37% or increase income by 60%. The trustees also estimated that Part A expenditures would grow from 2.7% of workers' earnings in 2000 to 10.7% by 2075 ("2001 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund," 3/19). Although Medicare Part B, which funds doctors' bills and other outpatient expenses, "never runs out of money," the trustees expressed "great concern" about the program, arguing that Part B could "consume a steadily growing share of income taxes" (New York Times, 3/20). They predicted that Part B would consume 22% of total general revenue in 70 years, compared to 5% of the total in 2000. Added together, the trustees said that Part A and B costs would almost quadruple over the next 75 years, rising from 2.2% of GDP today to 8.5% in 2075 (HCFA release, 3/19).