Medicare’s Hospital Trust Fund Will Be Insolvent by 2019, According to Trustees Report

The Medicare hospital insurance trust fund will become insolvent by 2019, the estimate given last year, according to a report released on Tuesday by the board of trustees for Medicare and Social Security, the New York Times reports (Pear, New York Times, 3/26). The trustees projected that Medicare spending will increase from 3.2% of gross domestic product in 2007 to 10.8% in 2082, which is slightly less than trustees predicted last year (Wayne, CQ Today, 3/25).

According to the report, Medicare will spend more than it brings in from taxes this year, but it will continue to receive significant interest income. The trustees indicated that Medicare outlays will exceed income by 2010. The long-term deficit for the program equals 3.54% of taxable payrolls, and fixing funding for the program over the next 75 years would require an increase in the Medicare payroll tax from 2.9% to 6.4% or a 51% reduction in payments to hospitals, nursing homes and home health care (Nutting, Dow Jones, 3/25).

In addition, the trustees predict a steep increase in the cost of a separate trust that pays for physician services and other outpatient care. However, that trust would not become insolvent because, under federal law, it has access to general revenue, and beneficiaries' premiums can be adjusted to cover about 25% of expected costs of Medicare Part B. The standard Part B premium increased by 64% over the past five years to $96.40 per month. Under the existing formula, the premium will remain at that level this year and next year, according to the trustees. However, the report said those projections were unrealistic because they assumed the Medicare payments to physicians would be reduced by more than 10% in July and an additional 5% in January 2009, as well as in each of the next seven years for total reductions of about 40%. Congress usually intervenes to block the physician payment cut (New York Times, 3/26).

According to the report, "The financial difficulties facing Social Security and Medicare pose enormous challenges." The report states, "The sooner these challenges are addressed, the more varied and less disruptive their solutions can be" (Crutsinger, AP/Connecticut Post, 3/26).

Medicare Funding Warning
The trustees also issued a "Medicare funding warning," which will require the next president to propose a plan to reduce the program's use of general tax revenues, CQ Today reports. Under the 2003 Medicare law, the funding warning is triggered when trustees estimate for two consecutive years that federal general fund revenue will finance more than 45% of total program costs within seven years. In response to last year's warning, President Bush proposed a plan that would require higher-income beneficiaries to contribute higher Medicare premiums and limit awards in medical malpractice lawsuits. The proposal has been introduced in the House and Senate, but the bills are not expected to advance, according to CQ Today (CQ Today, 3/25).

Presidential Candidates
All three leading presidential candidates "agree that Medicare's problems are part of the larger dilemma of rising health care costs and that they have similar kinds of proposals to try to rein them in without tax increases or benefit cuts," the Los Angeles Times reports. The candidates have proposed reducing costs by better coordinating care for people with chronic conditions, paying physicians and hospitals for quality of care rather than quantity of services provided, reducing prescription drug costs and emphasizing preventive care (Alonso-Zaldivar, Los Angeles Times, 3/26).

Presumptive Republican presidential nominee Sen. John McCain (Ariz.) has said he would use Medicare as a lever to push for other changes in the U.S. health care system, the Wall Street Journal reports (Barkley/Zhang, Wall Street Journal, 3/26).

Democratic presidential candidate Sen. Barack Obama (Ill.), responding to the report, said, "As president, I will reduce costs in the Medicare program by enacting reforms to lower the price of prescription drugs, ending the subsidies for private insurers in the Medicare Advantage program and focusing resources on prevention and effective chronic disease management" (New York Times, 3/26). Democratic presidential candidate Sen. Hillary Rodham Clinton (N.Y.) on Tuesday said that Medicare "is much more in crisis" than Social Security "and deserves closer attention" (Wall Street Journal, 3/26).

Reaction
Department of Treasury Secretary Henry Paulson said, "If we do not take action soon to reform Social Security and Medicare, the coming demographic bulge will jeopardize the ability of these programs to support people who depend on them. Without changes, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity."

Senate Finance Committee ranking member Chuck Grassley (R-Iowa) said, "Congress failed in recent years to respond to President Bush's call to strengthen Social Security, and there's no indication in this year's budget resolution or congressional agenda that lawmakers will make headway in making Medicare or Medicaid more fiscally fit" (Koffler, CongressDaily, 3/25).

However, House Ways and Means Health Subcommittee Chair Pete Stark (D-Calif.) said, "Reports of Medicare's death have been greatly exaggerated" (Wolf, USA Today, 3/26).

The report is available online.

C-SPAN video of a press briefing on the report with Paulson is available online (C-SPAN.org, 3/25).