Medicare funds to last 12 years longer than earlier forecast, report says

The Senate passed a landmark health-care bill by a vote of 60-39 on Thursday, Dec. 24, 2009 that would expand health-care coverage to more Americans and begin an overhaul of Medicare and the private insurance market.
By Amy Goldstein
Washington Post Staff Writer
Friday, August 6, 2010

Medicare's finances have been strengthened by the new law setting in motion broad changes to the nation's health-care system, according to a government forecast issued Thursday, which says the fund that pays for older Americans' hospital care will last a dozen years longer than expected.

The report, prepared annually by the trustees who monitor the two enormous federal entitlement programs for the elderly -- Social Security and Medicare -- says that the Social Security system has, at least for now, been damaged more severely than Medicare by the weak economy. For the first time in nearly three decades, the report says, Social Security will pay out more in retirement checks this year and in 2011 than it will take in through payroll taxes.

The relatively bright picture of Medicare's future triggered immediate debate over whether the forecast by the trustees, all members of President Obama's Cabinet, is realistic.

The trustees cautioned that the improved outlook for Medicare hinges on a sustained commitment by the government and the health-care industry to rein in medical costs.

The Medicare program's chief actuary was far more skeptical, contending that the report's predictions "do not represent a reasonable expectation" of its finances. In a two-page letter accompanying the trustees' report, Richard S. Foster, a non-partisan official who has been the Health and Human Services Department's top financial expert on Medicare for 15 years, said he doubted that health-care providers will become as efficient as the new law envisions. As a result, he said, the program is unlikely to slow payments for treating patients as much as the law anticipates and, as a result, will be unable to save as much money.

Congressional Republicans, meanwhile, repeated their contention that Democrats have been using what House Minority Leader John A. Boehner (Ohio) derided Thursday as "accounting gimmicks and tricks." The GOP argued that Medicare savings cannot be counted toward the program's financial health, because the law devotes such savings to help pay for more younger Americans to get private health insurance. Administration officials counter that the trustees' report uses the accounting rules the government requires.

Surrounded by such criticism, the trustees Thursday displayed a two-prong approach: They sounded sober about the daunting task of preserving the two giant entitlement programs for decades into the future. At the same time, they portrayed the new forecast as a success story from the law that the Democratic-led Congress enacted this spring at Obama's urging. "We must continue to make progress addressing the financing challenges facing the long-term solvency of these programs," said Treasury Secretary Timothy F. Geithner, the programs' lead trustee, even as he heralded what he called "very positive developments."

Specifically, the new report says Medicare's hospital trust fund will be able to pay all its bills until 2029, compared with last year's forecast of 2017. And the trustees say that the fund's shortfall over the next 75 years -- a time frame they are required by law to consider -- has decreased substantially.

The coverage of hospital services is the only part of Medicare paid through a trust fund and thus can run short of money. The rates for other parts of the program -- covering doctor visits, drug benefits and other services -- are set every year so they are guaranteed to have enough cash.

Although the report says Medicare's finances have improved more than Social Security's in the past year, the new forecast shows that the health-insurance program still is in greater fiscal danger and is forecast to run short of money sooner.

The report predicts that the Social Security trust fund will have enough money until 2037, the same date as in last year's forecast. After that, it would, without changes being made, be able to pay only part of retirees' money benefit checks. The program's long-term prospects would have been worse, the trustees said, but will be helped by a part of the health-care law that, starting in nine years, will put a new tax on the most expensive health plans.

For now, the Social Security trust fund has enough money to cover the gap, starting this year and in 2011, when the cost of retirees' benefits will exceed the money coming into the program. The program then will return to small surpluses for two years, the report says. After that, deficits will "grow rapidly," the report says, as the number of Americans in the large baby-boom generation who retire will grow faster than the number of workers paying into Social Security.

The long-term viability of Social Security, formed in the Great Depression, and Medicare, created in the mid-1960s, has long worried government officials and outside policy experts. Beyond the sheer number of baby boomers, the programs are strained because Americans are tending to live longer, and -- in the case of Medicare -- the cost of medical treatment has been rising fast.

In recent years, government commissions have repeatedly considered ways to shore up the programs. But Democrats and Republicans have disagreed about the best approach and shied away from the political pain of paring benefits for older Americans in the highly popular entitlements. Obama recently created a commission to try to recommend ways to curb the federal deficit. The group is assigned with coming up with recommendations to make Social Security more stable.

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