Medicare’s hospital trust fund is operating in the red for the first time since the program was created in 1965, and the surplus that took a generation to build could be exhausted in five years, the system’s trustees reported Wednesday.
They also said the Social Security trust fund will become insolvent in 2029, a year sooner than expected.
The news set off a new round of political backbiting.
Republicans used the annual report of the trustees of the Hospital Insurance Trust Fund to attack President Clinton anew for vetoing budget legislation last year that would have put the program on a sounder financial footing.
“That Medicare is going bankrupt is not the news of the day,” declared Haley Barbour, the Republican Party national chairman. “That Bill Clinton has allowed it to happen is.”
Democrats responded that Republicans wanted to gut the Medicare program to raise money for a tax cut for the wealthy. “Their goal,” said Rep. Richard Gephardt of Missouri, the minority leader in the House, “has been to raid Medicare, not to save it - but to lavish more tax breaks on the very people who don’t need them.”
Republicans want to trim $168 billion from the growth of Medicare over the next six years by allowing spending to rise 7.5 percent a year instead of the current projection of 10 percent. The administration proposes smaller savings of $116 billion over the six years.
The trustees - three members of the Clinton Cabinet, the commissioner of Social Security and two nongovernmental experts on the subject - reported that unless the law was changed to raise more revenue or hold down costs, the trust fund that pays the hospital bills for the elderly and disabled will go into the red in 2001, one year earlier than they forecast last year.
The finding came as no surprise, having been telegraphed by administration officials at a congressional hearing in February and documented in a recent assessment by the Congressional Budget Office.
The hospital insurance trust fund, called Part A of Medicare, is financed by a 2.9 percent payroll tax divided equally between workers and their employers.
Part B, which covers doctor bills and other outpatient expenses, is financed in part by monthly insurance premiums but mostly by general government revenues. Its solvency is not now in question.
The latest figures show that expenditures under Part A are exceeding revenues to such an extent that the trust fund, which now has a surplus of $121 billion, will be almost completely depleted by 2000 and will run a deficit of $53 billion in 2001 unless changes are made.
Donna Shalala, the secretary of health and human services, said that the forecast had become worse in the last year because of higher costs than expected for home health care, skilled nursing and hospices; because hospitals were performing more expensive procedures, and because revenues were slightly lower than anticipated.
But the immediate financial condition of the program is not nearly so dire as it might seem at first blush. Competing proposals for a short-term fix by the White House and congressional Republicans are quite similar in their basics. A compromise could be reached if the two sides found it was in their political interest to do so. Politicians and scholars have no doubt that a solution will be found before the trust fund is exhausted.
“The differences between the Democrats and the Republicans are not that great,” said Stuart Altman, an economist at Brandeis University who specializes in health policy. The real problem in the view of Altman and many other students of the situation - one that few politicians in either party are addressing - will arise in about 2010. That is when the baby-boom generation will begin to retire. Without fundamental changes in the Medicare system or back-breaking taxes on younger workers, there will not be enough money then to pay for the health care of retirees.
But even though the findings released on Wednesday were expected, the partisan bickering was unallayed.
Rep. Bill Archer of Texas, the Republican chairman of the Ways and Means Committee, called a news conference to say that the new numbers showed that the financial status of Medicare had seriously deteriorated in the last year. “Medicare is going broke, and the cost of last year’s veto is profound,” Archer declared.
The White House strategy was to try to appear reasonable. Clinton, on his way to a meeting on Capitol Hill with Democratic representatives, urged Republicans to sit down with him and work out a bipartisan agreement.
“We have the ability right now to put 10 years on the life of that trust fund, and we ought to just do it,” he said. “The differences in our numbers are not that dramatic.”
But the president’s supporters refused to concede that the program must undergo basic changes. Asked at a news conference whether retirees might be facing fewer services or higher costs under Medicare, Shalala replied, “Absolutely not.”
Social Security’s problems won’t become critical until 2012, the year in which benefits are projected to outstrip tax collections. On paper, Social Security is building a surplus to handle the baby boomers’ retirement, and the program is solvent until 2029.
But years of government deficits have sabotaged that strategy. When tax collections no longer suffice, the money to pay benefits will have to come from elsewhere in the budget, or from higher taxes and more borrowing.
“We have both a short-term problem that’s serious, and an extremely serious long-term problem,” said Sen. Bob Kerrey, D-Neb., an advocate of overhauling benefit programs. “Regardless of who wins the elections this fall, we will see in 1997 that we need to do things like raising the eligibility age for these programs and charging higher deductibles and co-payments for Medicare.”
1. Medicare in trouble 2. Social Security in trouble
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