Report From Medicare Trustees Underestimates Financial Problems of Program, Columnist Writes

An "accounting convention" that allowed the Medicare trustees to count general revenue transfers as dedicated resources for two of Medicare's subprograms in their annual report "should be changed" because it allowed trustees to underestimate Medicare's true financial situation, Jagadeesh Gokhale, a senior fellow at the Cato Institute, writes in a Wall Street Journal opinion piece. In a report issued last month, trustees estimated that the Medicare hospital trust fund will become insolvent by 2019, seven years earlier than was estimated last year. They also said that the trust fund faces a financial imbalance of just under $22 trillion. According to Gokhale, some economists believe that figure reveals "only about a third of the truth" because trustees used an accounting method that allowed them to report zero unfunded obligations for both Medicare Part B, which covers outpatient care, and Medicare Part D, the new prescription drug benefit. The method allows most federal programs that are funded out of general revenue -- including the Department of Defense and the criminal justice system -- to treat general revenue as a dedicated funding stream that is renewed each year through congressional appropriations, Gokhale writes. As a result, the programs do not have to report financial imbalances over an extended future, according to Gokhale. Further, the accounting method allowed Medicare trustees to report a shortfall of $22 trillion, when the total shortfall is actually closer to $62 trillion, according to some economists, including the Private Enterprise Research Center run by Thomas Saving, a Medicare trustee. Although it is not "wrong" under the law, the accounting convention "hides competing claims on the same general revenue dollar when no one -- not even Congress -- can spend the same dollar multiple times," Gokhale writes. He concludes, "If the objective is to provide useful information to policymakers, the financial reports of individual programs should exclude general revenue funding -- even if current practice or laws extend such funding to them" (Gokhale, Wall Street Journal, 4/15).