Medicare Now Looks Robust Enough to Postpone Fixing


The combination of recent spending restraints and a surging economy has dramatically improved the financial health of the Medicare program--and reduced practically to zero the chances that Congress will overhaul the program before next year’s elections.

The trustees of the Social Security and Medicare programs reported Tuesday that the Medicare trust fund--which covers the hospital costs of 39 million elderly and disabled Americans and which only two years ago had been projected to run out of necessary funds in 2001--should now be able to hang on until 2015. Last year’s report pushed the date back to 2008, and this year’s bought the program another seven years.

Social Security’s financial health also is improving, but less spectacularly. The trustees this year put off its projected day of reckoning by two years, to 2034.


Despite the receding crises, President Clinton and congressional leaders vowed to press ahead with financial reforms to shore up the programs against the day when the baby boom generation begins becoming eligible for their benefits.

“Now is the time to make those changes--now when our economy is strong, now when our people have renewed confidence, and now when . . . modest changes today can have major impacts in the years ahead,” Clinton said.

House Speaker J. Dennis Hastert (R-Ill.), echoing those sentiments, said that Republicans were committed to “preserving and strengthening the programs.”

The reason that adjustments will be necessary is no mystery. The Social Security and Medicare trustees projected that the number of program beneficiaries would rise over the next three decades from 39 million now to 70 million in 2030. Where there are now 3.4 workers paying Medicare and Social Security payroll taxes for every beneficiary, there will be only 2.1 by 2030.

But the political reality is different. The chances for an agreement this year to overhaul Medicare were never rosy. Any agreement would have to ask the elderly to pay more for fewer benefits, hospitals and doctors to accept smaller payments and taxpayers to increase their contributions.

“Now members of Congress will say: ‘Why take it up, especially if we get seven more years?’ ” said Rep. Robert T. Matsui (D-Sacramento).

That’s fine with John Rother, chief lobbyist for the American Assn. of Retired Persons, which is adamantly protecting Medicare and Social Security benefits. “We have a little more time to work out the kinks and find some improvements and not be so rushed,” Rother said.

Outside experts agree that policymakers have been looking for any excuse to duck the tough political decisions until after next year’s elections. The last time lawmakers got up the courage to change a major entitlement program was in 1983, when Social Security was on the verge of being unable to send out checks to retirees.

“These numbers will take the pressure off lawmakers, many of whom will argue that they now have more time to figure out how to restructure the programs for the long term because we aren’t close to the cliff,” said Robert D. Reischauer, a Brookings Institution senior fellow.

“It gives them an excuse to say, ‘We have a little more time to debate the topic,’ ” said Murray L. Weidenbaum, chairman of the Center for the Study of American Business at Washington University in St. Louis.

The seven Social Security and Medicare trustees include Treasury Secretary Robert E. Rubin, Health and Human Services Secretary Donna Shalala and Labor Secretary Alexis M. Herman. Only the portion of Medicare financed by payroll taxes to pay hospital bills is overseen by the trustees; the rest of the program--which covers doctor visits--is financed by general tax revenue and beneficiary premiums.

The forces extending the life of the trust fund, the largest component of the entire Medicare program, are threefold.

The robust economy, which has pushed unemployment down to 4.4%, has the corollary effect of driving up revenue from the payroll tax, the program’s main source of funds.

At the same time, the program’s costs are dropping more than expected as a result of reductions in payments to providers that were enacted as part of the 1997 Balanced Budget Act. The Congressional Budget Office recently reported, for example, that reductions in payments to skilled nursing facilities from 1998 to 2002 would exceed earlier projections by $7 billion.

Finally, there is the Justice Department’s aggressive crackdown on Medicare fraud and abuse, which has returned $1.2 billion in fines and repayments over the last two years.

The rigorous enforcement also has had a prophylactic effect, warning providers that they risk prosecution if they pad the bills they send to the government for treating Medicare recipients. Shalala said the error rate in payments to fee-for-service doctors and hospitals had been cut in half over the last two years.

In the case of Social Security, 75% of the projected savings over the long-term life of the program can be traced to lower annual cost-of-living benefit increases resulting from a change in estimating techniques adopted last year by the Bureau of Labor Statistics.

Also at work is the same sort of increase in payroll tax revenue that is projected for Medicare, which results in large measure from a reduction in the projected long-term unemployment rate from 6% to 5.5%.