Skip to comments.Medicare’s Dirty Little Secret : It's already insolvent
Posted on 04/25/2012 4:11:13 AM PDT by SeekAndFind
Its something everyone knows, but no one wants to talk about: Medicares cash position makes Enrons business model look downright reputable.
Medicare is bleeding cash a fact disguised by creative accounting. According to Mondays release of the 2012 Trustees Report, in 2011 Medicare took in $260.8 billion in payroll taxes and beneficiary premiums, but spent $549.1 billion in medical services. That means last year Medicare ran a $288.3 billion cash shortfall.
And 2011 wasnt the exception; it was the norm. Since President Lyndon Baines Johnson secured passage of Medicare legislation in 1965, the program has run cash deficits every year except 1966 and 1974.
Advocates of the status quo argue that Medicare receives general revenue transfers, but thats government-speak for raiding the Treasury to spend other tax revenues. Its the dramatic use of general-revenue transfers that has hidden Medicares true insolvency from the public and masked Medicares contribution to the national debt.
The annual release of the Medicare Trustees report offers a fleeting moment for adult conversations among policymakers about the programs long-term trajectory. We must take advantage of this years moment and come to a bipartisan understanding that the Medicare program needs structural reform and not just nibbling around the edges.
To illustrate why structural reform is needed, consider what it would have taken to have had a positive Medicare cash-flow balance in 2011:
For Medicare Part A (hospitals), the cash deficit was $61 billion. To balance this deficit, payroll taxes on employers and workers would have to have been increased by 31 percent.
For Medicare Part B (physicians), the cash shortfall was $168 billion. To balance this deficit, seniors physician premiums would need to increase by 392 percent, meaning the annual physician premium cost to seniors would have risen from $1,198 to $4,687 an increase of $3,499.
For Medicare Part D (drugs), the cash shortfall was over $59 billion. To balance this deficit, seniors premiums for prescription drugs would need to increase by 871 percent, meaning the annual drug-premium cost to seniors would rise from $372 to $3,250 an increase of $2,878.
It is plain that these sharp increases are not viable. Nonetheless, President Obama steadfastly defends Medicares existing financing structure. In his address to AP reporters last month, the president called alternative (and bipartisan) approaches such as premium support to be thinly veiled social Darwinism. Since only the fittest will survive the future collapse of Medicare, President Obama should think hard before making such accusations.
Since taking office, President Obama has overseen a Medicare cash-flow deficit of more than $869 billion. This includes $570.7 billion in red ink accumulated since the passage of the presidents signature health-care law, which siphoned off $732 billion in Medicare funding over the next ten years. By the end of 2012, the trustees project that the Obama administration will have overseen a $1.2 trillion Medicare cash shortfall.
Left unchanged, Medicare costs will continue to escalate, leading to annual shortfalls and a projected cash-flow deficit of over $450 billion in 2020. These shortfalls lie at the heart of past and future deficits. Between 2001 and 2010, cumulative Medicare cash-flow deficits totaled $1.5 trillion, or almost 28.5 percent of the total federal debt accumulated in the hands of the public during the past decade.
Going forward, the situation is even worse. By 2020, the cumulative cash-flow deficits of $6.3 trillion will constitute 41 percent of the nations total debt accumulation. Including interest costs, accumulated Medicare spending will be responsible for over 43 percent of public debt.
A sensible solution would be to offer Medicare beneficiaries the option of a defined-contribution program as proposed by House Republicans and Mitt Romney. Seniors would be budgeted an annual contribution, which could be adjusted to reflect costs associated with their health status and financial wherewithal. For the federal budget, the result is a capped exposure to Medicare one that would adjust to reflect the number of seniors and inflation.
That would be great news for the nations spending outlook. It would be even better news for the exploding debt and the threat it carries to the nations economic health. Most importantly, it would secure Medicare for future generations.
Douglas Holtz-Eakin is the president of the American Action Forum and previously served as the director of the Congressional Budget Office. Jim Nussle is a former chairman of the House Budget Committee and previously served as the director of the Office of Management and Budget.
We have a "bipartisan understanding" now. Which is why we are where we are.
How about an American understanding that socialism doesn't work, and that spending our posterity's money, without their consent, is immoral.
It’s easy to can Medicare. Their total budget was = to $908/beneficiaryper month iin 2011.
Close CMS. Distribute $404 dollars monthly in their SS check those that were Medicare eligible to allow them, if they choose, to put toward purchasing a health insurance policy.
Thank George W. Bush for this one.
The greatest “advantage” of this year’s moment concerning Medicare, is that Medicare is the prototype for the “Patient Protection and Affordable Care Act”. Whatever is going awry with Medicare (underfunding, extending mandates and requirements beyond the original scope, growing numbers of participants with fewer and fewer contributors, and gross mismanagement of funds), will be greatly exaggerated with the vast expansion of this bureaucratic nightmare through “Obamacare”. If they could not get Medicare to work in a businesslike manner, what hope is there that “Obamacare” will EVER be manageable?
The government-based delivery of health services is ALREADY out of control. And there is no means available either through its own provisions, or through judicial review, that will rein it back.
Elect a Congress that will devolve it immediately to the states, and a chief executive who will sign the bill.
Good points, by the way.
Health care was already more than half socialized (ie totally screwed up) before Obama ever came along.
And a GOP controlled Congress. Funny how so few around FR remember those kinds of details.