Report Pushes Back Insolvency Date for Medicare Trust Fund

The Medicare hospital trust fund will become insolvent by 2019, one year later than estimated last year, according to a report released on Monday by the board of trustees for Medicare and Social Security, the Washington Post reports (Lee, Washington Post, 4/24). The board includes four Bush administration officials and two public trustees (Alonso-Zaldivar, Los Angeles Times, 4/24).

According to the report, Medicare expenditures in 2006 totaled $408 billion and accounted for about 3.1% of U.S. gross domestic product and by 2030 will account for more than 6.5% of GDP (Andrews/Pear, New York Times, 4/24). The report said that the estimated long-term growth rates of both Medicare and Social Security are "not sustainable under current financing arrangements" and that "Medicare's financial difficulties come sooner -- and are much more severe -- than those confronting Social Security" (Ives-Halperin, Wall Street Journal, 4/23).

In addition, the report for the first time estimated that general revenue contributions will exceed 45% of total Medicare expenditures for two consecutive years, 2012 and 2013. Under the 2003 Medicare law, the estimates require the president to submit to Congress legislative proposals to reduce program expenditures (Washington Post, 4/24).

Congress must consider, but does not have to take action on, the legislative proposals (Holland, AP/Detroit News, 4/24).

The report said that the financial problems Medicare faces in part have resulted from increased health care costs, the 76 million baby boomers expected to become eligible for the program in the near future and new expenditures related to the prescription drug benefit. However, the cost estimate for the Medicare prescription drug benefit over the next 10 years has decreased "significantly," the report said (New York Times, 4/24).

In addition, the report found that inpatient hospitalizations among Medicare beneficiaries decreased from about 13.8 million to about 13.1 million during the past year (Johnson, CongressDaily, 4/24).

Department of the Treasury Secretary and trustee Henry Paulson said, "Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity" (Washington Post, 4/24).

John Palmer, an economics professor at Syracuse University and a public trustee, said, "While the (Medicare) warning is new, it simply reflects the same dire fiscal reality we've been reporting for years, and that has been exacerbated by the addition of the new prescription drug benefit. If anything ... the challenge here has been understated" (Los Angeles Times, 4/24).

Thomas Saving, an economist and public trustee, added, "Without significant reform, these programs are not sustainable in the long run" (Washington Post, 4/24).

White House Office of Management and Budget Director Rob Portman said that "sensible reforms now that slow the rate of growth even slightly will generate substantial future savings that can save" Medicare and Social Security. He added, "It is disappointing that the new congressional majority chose to completely ignore entitlements in their recently passed 2008 budget proposals."

Senate Finance Committee Chair Max Baucus (D-Mont.) said, "Rapid growth in health care costs is causing mounting pressure on public and private payers alike. I am concerned, however, that the 'Medicare funding warning' in this report will prompt the president only to propose slashing Medicare spending, rather than to focus on the underlying factors driving costs throughout the health system."

Baucus added, "Any presidential proposal resulting from this warning should address the fundamental issues plaguing the system as a whole: health coverage and health care costs" (Angle, CQ Today, 4/23).

According to Rep. Pete Stark (D-Calif.), the provision in the 2003 Medicare law related to the estimates that general revenue contributions will exceed 45% of total Medicare expenditures for two second consecutive years established "an arbitrary threshold designed to scare people" (Los Angeles Times, 4/24).

Three broadcast programs reported on the report. Summaries appear below.

• American Public Media's "Marketplace": The segment includes comments from Paulson (Hobson, "Marketplace," American Public Media, 4/23). Audio and a transcript of the segment are available online.
• C-SPAN's "Washington Journal": The program includes a discussion with Saving ("Washington Journal," C-SPAN, 4/24). Video of recent segments is available online.
• NPR's "Morning Edition": The segment includes comments from HHS Secretary Mike Leavitt; Bruce Vladeck, interim president of the University of Medicine and Dentistry of New Jersey and former head of the Medicare and Medicaid programs; and Robert Greenstein, executive director of the Center on Budget and Policy Priorities (Rovner, "Morning Edition," NPR, 4/24). Audio and a partial transcript of the segment are available online.