Medicare faces cash crunch

Recent reforms contribute to predictions of even earlier insolvency but offer tools to lower spending.

By Markian Hawryluk, amednews staff. April 5, 2004.

Washington -- Medicare has moved seven years closer to bankruptcy, according to the 2004 report of the Medicare trustees, issued March 23. The Medicare Part A trust fund is now projected to run out in 2019, instead of in 2026, as estimated last year.

The trust fund represents the money left over from payroll taxes collected to support the hospital insurance part of Medicare. As retirements crest for baby boomers, beginning in 2010, Medicare beneficiary ranks will swell while the number of taxpayers supporting them will drop. That situation will force the government to dip into the surplus funds, eventually draining the trust fund.

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Part B Medicare, which covers physician services, remains on solid financial ground because beneficiaries' premiums and outlays from general revenues are automatically adjusted annually. But legislation passed in 2002 and 2003 after the beneficiary premium already had been set has led to deficit spending for 2003 and 2004. Beneficiaries face a significant increase in premiums next year.

Part A's looming insolvency was attributed primarily to higher spending and lower tax revenues in 2003 and new spending resulting from last year's Medicare Modernization Act.

But Health and Human Services Secretary Tommy Thompson said the legislation also would provide substantial savings not factored into the estimates.

"The reforms built into the new Medicare law often get overshadowed by the new prescription drug benefits, but these reforms provide more tools to use to improve the solvency of the program," he said.

Actuaries cannot predict savings from disease management programs, preventive benefits or new screening services that are expected to lower long-term program costs, he said. The Medicare bill also included a provision requiring the president to propose spending reforms if Medicare's general revenue financing exceeds certain thresholds.

The trustees' report spurred renewed attacks on the new Medicare law. Critics charged the Bush administration and congressional Republicans with allocating too much for managed care plans and pharmaceutical manufacturers and leaving beneficiaries vulnerable to future cuts.

"That law lavishes billions of dollars on HMOs -- $46 billion according to the administration's own estimates -- most of which comes directly out of the trust fund," said Rep. Fortney "Pete" Stark (D, Calif.). "Despite this fact, Republican rhetoric continues to claim that HMOs and PPOs are the solution to Medicare's future financial challenges."