America's Medicare program for hospital insurance will reach a point of fiscal "exhaustion" in 2024, five years earlier than was estimated a year ago, the trustees for the federal program announced Friday. The revision was partly due to the slow economic recovery.
The outlook for Medicare, however, could be worse than the sobering estimate implies. In their annual report, the trustees warned that their projections were based on "debatable" savings assumed under President Obama's health-care reforms, known as the Affordable Care Act.
Specifically, the Affordable Care Act calls for payment reductions in most Medicare services based on expected productivity growth in the economy. The law also calls for downward adjustments in payment rates to physicians.
While not rendering a verdict on those assumptions, the trustees noted that Congress has often failed to successfully implement such measures to curb the cost growth within the program, which covers key health-care costs for most seniors.
Even with the optimistic assumptions in place, the report shows a wide long-term gap between Medicare costs – including hospital insurance, physician fees, and drug benefits – and the payroll-tax revenues designed to support the program.
A $33 trillion Medicare gap
The report estimates the size of that gap over the next 75 years at some $33.8 trillion. That's more than two years worth of the nation's economic output. Put another way, an extra 3.8 percentage points of gross domestic product (GDP) would need to be set aside, perpetually, by taxpayers to fill that gap, the report said.
In recent years, the US has been spending about 15 percent of GDP on health care.
Separately, trustees of Social Security released their own annual report Friday, which also showed a program in deeper trouble than was visible a year ago.
"Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983," the trustees said in a summary of their report.
The trustees said the program's trust fund now appears likely to be exhausted in 2036, "one year earlier than was projected last year."
The report uses the term "exhaustion" to mean something distinct from bankruptcy or total lack of funds. After 2036, for example, Social Security would be able to use payroll-tax revenues to pay about three-quarters of scheduled benefits through the year 2085.
Similarly, Medicare would not totally run out of money in 2024.
Which way forward?
But the reports highlight a point that is already apparent to politicians and voters alike: that the nation's entitlement programs require reform to remain solvent for the long term, and to avoid running the government into a fiscal crisis.
"The biggest threat Medicare faces right now is the status quo," House Speaker John Boehner (R) of Ohio said in a statement calling for reforms proposed by Republicans, which include transforming Medicare benefits into a fixed annual payment for insurance.
Mr. Obama has put out his own plan, which envisions deeper cost cuts being decided by an advisory board.
Republican presidential hopeful Mitt Romney this week also outlined new health-care proposal, which he said would rely on free-market forces to curb costs.
With both parties deeply divided on the issue, however, passage of major legislation would appear unlikely this year.