Medicare’s fiscal outlook darker, report says

WASHINGTON – Medicare’s long-term financial woes deepened over the last year as the program’s main funding source for hospital care is projected to go broke in 2018 – two years sooner than predicted last year, according to an annual report by the program’s trustees.

The Medicare Hospital Insurance trust fund, which pays primarily for inpatient care and is funded through a 2.9 percent payroll tax, is already operating at a deficit and is projected to hit a new low in 2012. By then, total Medicare spending will exceed program funding by 45 percent, the report found.

If that projected funding gap is not closed by next year’s report, the projected shortfall would be considered a “funding warning,” triggering a requirement that the president must offer a legislative remedy to Congress that must be considered on an expedited basis.

Health and Human Services Secretary Michael Leavitt used the report to urge Congress to adopt President Bush’s plan to cut Medicare spending. Bush’s plan would reduce Medicare’s spending growth by $36 billion between 2007 and 2011, mainly by trimming annual inflation updates in payments to doctors and hospitals. Medicare would grow at 7.7 percent a year under the Bush plan compared with the current growth rate of 8.1 percent.

“The message of this report is urgency,” said Leavitt. “I do not want to stand here another year with just another bad report and another year of inaction. It’s time to act.”

The report also found funding problems with Social Security, the nation’s largest entitlement program. Without changes, tax revenues for Social Security are expected to fall below program costs in 2017, the same estimate as last year’s report. The program will no longer be able to pay benefits at promised levels in 2040, one year earlier than predicted last year.

While the two popular but costly programs face a daunting economic future, the trustees and most experts agree that Medicare’s problems are much more severe, imminent and harder to fix.

Today there are about four taxpaying workers for each of the estimated 43 million elderly and disabled Medicare beneficiaries. By 2075, that ratio will be about 2-to-1. That’s an insufficient tax base to take care of the nation’s retirees, whose numbers will grow dramatically as nearly 80 million baby boomers born before 1964 begin to retire in the coming decades.

While Congress can raise taxes or cut benefits to meet Medicare’s growing obligations, neither provides a long-term fix because program spending is largely at the mercy of rising health care costs. And Americans have resisted previous efforts, notably during the Clinton administration, to curb costs by limiting access.

With no change to the system, Medicare would eat up 25 percent of all federal income tax revenues by 2021 – more than triple its funding requirements in 2005.

Despite the bad news, the trustees found that Medicare’s projected spending for the new drug benefit will drop significantly due to lower than expected enrollments in the drug plans and a slowdown in overall prescription drug spending.

In a speech to the American Hospital Association on Monday, President Bush said the government has an obligation to provide care for the nation’s poor and elderly, “and I intend to keep that obligation,” he said.

The president also has called for a bipartisan commission to study possible fixes for all federal entitlement programs, including Medicare and Social Security.