Annual Federal Report Forecasts Medicare Funding Gap by 2019

[CAL/AAEM News Service]

Annual Federal Report Forecasts Medicare Funding Gap by 2019

Source: The California Healthline ( http://www.chcf.org )
Date: March 26, 2008


The Medicare hospital insurance trust fund will become insolvent by 2019, the same year
that was estimated 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).

The report states, "The financial difficulties facing Social Security and Medicare pose
enormous challenges." The report adds, "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). 

Responding to the report, Democratic presidential candidate Sen. Barack Obama (Ill.),
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).

Abid Mogannam &
Brian Potts MD, MBA
Managing Editors, CAL/AAEM News Service
University of California, Irvine

The CAL/AAEM Archives are available at: http://maillists.uci.edu/mailman/public/calaaem/


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