Medicare Trust Fund Running Dry, Studies Say

Published February 1, 2009

A senior official at the Centers for Medicare and Medicaid Services has confirmed the results of an Associated Press investigative report revealing the current economic downturn could cause the Medicare Part A trust fund to run out of funds up to three years ahead of schedule.

Richard Foster, chief actuary for CMS, said the decrease in payroll tax revenue will likely cause the trust fund to become insolvent as early as 2016, instead of 2019 as estimated by Medicare trustees in early 2008.

Huge Unfunded Liability

Medicare is already facing a $12.7 trillion unfunded mandate over the next 75 years, according to a report issued by the National Center for Policy Analysis, and the federal government has very few options on the table to deal with the problem.

“If it hopes to keep Medicare and Social Security, the nation’s two biggest unfunded mandates, afloat in current form, the federal government basically has three options, none of which are very attractive,” said Andrew Rettenmaier, executive associate director of Texas A&M University’s Private Enterprise Research Center.

“The options include increasing payroll taxes by 15.6 percent and placing that money in untouchable interest-bearing accounts until it is needed; increasing federal income taxes by 60 percent across the board; or continuing the current pay-as-you-go approach, raising taxes and cutting benefits along the way,” Rettenmaier said.

Hiking Everybody’s Premiums

Medicare and Medicaid are already severely underpaying hospitals and physicians, forcing those providers to charge private insurers more for services, according to a study by Milliman, Inc. This, in turn, has caused premiums to increase by nearly 11 percent for a family of four, the study found.

The Milliman study concluded Medicare and Medicaid are underfunded by an annual aggregate of nearly $90 billion. That burden is shifted onto consumers of private insurance in the form of higher premiums, adding “$1,512 to average premiums for a family of four, of which employers pay about $1,115 and employees $397.”

Running Out of Money

Even after the Medicare Part A trust fund has been exhausted, CMS will continue paying for enrollees’ inpatient, nursing home, hospice, and home health care, according to the department of Health and Human Services.

However, without significant reform to the system, the portion of those costs the federal government can afford to pay will continue shrinking until there is no longer any money to pay for Medicare patients, the NCPA study reported.

Joe Emanuel ([email protected]) writes from Georgia.

For more information …

 “Hospital & Physician Cost Shift: Payment Level Comparison of Medicare, Medicaid, and Commercial Payers,” Blue Cross Blue Shield:

“Thinking About Tomorrow: Debt and Unfunded Liability in Medicare and Social Security,” National Center for Policy Analysis: