Medicare Hospital Fund May Be Broke in 7 Years : Insurance: If spending patterns continue, the entitlement program will be out of funds by 2001, Congress is told. But Social Security is sound.
The fund that helps pay hospital bills for 36 million Medicare beneficiaries is headed for bankruptcy and will run out of money in seven years unless it is redesigned, the fund’s trustees warned Monday in an annual report to Congress.
The expected shortfall, a result of rising hospital charges and increasing numbers of admissions, will surpass the added revenues from last year’s tax increases that made all wages subject to the Medicare payroll tax.
The trustees also warned that current proposals for health reform fail to “adequately address the serious long-range financial imbalance” in Medicare.
By contrast, the Social Security retirement trust fund is financially sound and is not expected to run out of money until 2036, according to the trustees. The relative strength of the fund gives Congress a long lead time to make changes in the system before the baby boomer generation begins retiring in the next century. Without such changes, however, the current surpluses will be wiped out.
The retirement fund is so stable now, however, that money can be diverted temporarily from it to help the disability insurance program, which will need extra funds in 1995, the report said. Congress has routinely authorized such shifts when the disability or retirement fund has come under financial pressure.
A more difficult dilemma faces legislators in dealing with Medicare, a program that is both tremendously popular and immensely expensive. It is surpassed in cost only by defense spending and Social Security among all government programs. Benefits are available to 32 million Americans 65 and older and 4 million disabled people.
The hospital fund, called Part A, is financed by taxes collected from 138 million working Americans. Workers pay 1.45% of all wages, an amount matched by their employers. Those who are self-employed pay 2.9% of their earnings. The hospital fund spent $94.4 billion last year under Part A and had revenues of $97.1 billion.
However, current spending patterns show that the hospital fund is expected to run out of money in 2001, when its outlays will exceed tax revenues.
The problem leaves Congress with the distasteful choice of raising the tax rate or reducing the growth in benefits--both politically unpopular moves.
The Part B Medicare program, which pays doctor bills, is financed by monthly premiums from the beneficiaries (25%) and general federal tax revenues (75%). Total spending has soared 59% in five years and the trustees called for “prompt, effective and decisive action” to control costs.
However, the fund is not immediately in danger because the law requires Congress to provide needed revenues automatically on an annual basis. Spending totaled $57.8 billion last year under Part B, balanced closely with revenues of $57.7 billion.
Medicare costs are skyrocketing, the American Assn. of Retired Persons said Monday, calling for “comprehensive health care reform.”
Horace Deets, executive director of the 32-million-member organization, said: “Only systemwide reform can control rising health care costs without diminishing quality or further impeding access.”
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The AARP insists, however, that its support for health reform is tied to the inclusion of prescription drug coverage and a new program of home and community-based care, two costly benefits.
The Administration believes that its formula for health care reform would help rescue Medicare financially.
“Medicare’s financial condition would improve significantly as a result of general cost containment under the President’s health care reform proposal,” said Health and Human Services Secretary Donna Shalala, one of the trustees of the system.
The President wants to cut $118 billion from future Medicare outlays to help pay for coverage for Americans who lack health insurance.
The Social Security retirement trust fund--which pays benefits to retired workers, their spouses and survivors--is running at a substantial surplus. Combined income last year for the retirement and disability funds was $355 billion, compared with benefit outlays of $302 billion.
The retirement fund will increase rapidly in the next 10 years, permitting the diversion of cash to the disability trust fund, which could be exhausted next year.
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The current payroll tax is 6.2%, including 5.6% for the retirement fund, and 0.6% for disability. Workers and employers pay the tax on all wages up to $60,600. The trustees propose that the formula be changed, keeping the total tax the same but increasing the disability fund’s share of revenues to 0.94% to assure its solvency.
The trustees include three Cabinet officers: Shalala, Treasury Secretary Lloyd Bentsen and Labor Secretary Robert B. Reich.
The public trustees are Stanford G. Ross, a Washington attorney and Social Security administrator during the Jimmy Carter Administration, and David M. Walker, director of compensation and benefits in the Washington office of Arthur Andersen, an international accounting firm. He was a deputy secretary of labor in the Ronald Reagan Administration.
