Medicare Trustees See Rapidly Approaching Insolvency

Published October 2, 2012

The annual report from Medicare’s trustees highlights concerns that bankruptcy could arrive for the program much earlier than previously anticipated.

Medicare, the government’s medical insurance program for the elderly, covers 48.3 million people. With baby boomers now reaching the eligible age of 65 at the rate of 10,000 a day, the future of the program is in serious doubt.

Just two years after the passage of President Obama’s health care law, Medicare’s trustees are skeptical that the Medicare cost controls in the law will be sufficient to save the program’s solvency. In their 2012 report, the trustees moved up their prediction of bankruptcy five years sooner, predicting Medicare Part A could be insolvent as early as 2016. And the trustees concluded the program will eventually become unsustainable in the absence of significant reform.

A Depleted Trust Fund

The trustees’ central concern is Medicare’s trust fund, which is rapidly being depleted. Current projections indicate that the trust will be empty by 2024, and the program, relying solely on existing revenues, will be unable to pay all its bills. By its first year of insolvency, the program will only be able to pay for 87 percent of its obligations. This percentage will decline further over time, the trustees predict.

The Medicare payment reductions and structural reforms called for under Obama’s law will produce savings, according to the Trustees. But the problem is that the money—about $500 billion in savings over the next 10 years—is already slated to pay for the law’s vast expansion of health insurance coverage, which virtually guarantees that the Medicare trust fund will become insolvent in 2016.

Devon Herrick, a senior fellow with the National Center for Policy Analysis, a Dallas-based free market think tank, says making it all work will require higher taxes, previously unplanned spending cuts in other areas, additional borrowing, or a combination of all three. But according to Herrick, the cost control measures stuffed into President Obama’s law are unlikely to work.

“The Congressional Budget Office (CBO) has condemned some of the better-known pilot projects and demonstration programs on several occasions as unworkable, ineffective, or unlikely to save money,” said Herrick.

Rationing, Payment Reductions Incoming

According to Herrick, the real tools Obama’s law will use to keep Medicare sustainable are far more draconian than previously acknowledged.

“The only way that Obama’s law will be able to control costs is through price controls and fee reductions.  The Medicare chief actuary has stated that if the draconian cuts scheduled to reduce Medicare physician fees actually take place, many seniors will lose access to the doctors that treat them,” Herrick explained.

Sally Pipes, president and CEO of the Pacific Research Institute, says Obama wants $716 billion in cuts over 10 years from Medicare to fund other programs under ObamaCare and has no plan to save the program.

“As a result, it will become more and more difficult for seniors to find doctors that will treat them, and this will ultimately lead to rationing,” Pipes said.  

Providers Will Opt Out

Jonathan Ingram, a senior health care policy analyst at the Illinois Policy Institute, predicts that as federal bureaucrats continue to cut reimbursement rates farther and farther below the cost to deliver services, more and more medical providers will opt out of Medicare altogether.

“As the baby boom population ages and more doctors opt out, more and more patients will be competing for fewer and fewer doctors willing to see them,” said Ingram. “We’re already seeing this happen in Medicaid, the federal health program for the poor. Most doctors are taking few or no new Medicaid patients. This leaves many Medicaid patients waiting weeks or months to see a doctor, if they can get an appointment at all.”

“We’ve seen the future that ObamaCare and the Independent Payment Advisory Board (IPAB) bring to Medicare. It’s not just ugly. It’s deadly,” said Ingram.

Double-Counting Funds

The Congressional Budget Office projects Obama’s law will cut more than $700 billion from Medicare over the next 10 years, Ingram notes. But the law then spends that money on other unsustainable entitlements, creating a completely new entitlement for the middle class in the form of insurance subsidies and massively expanding the existing Medicaid program.

Because ObamaCare uses those double-counted “savings” to fund other entitlements, the Congressional Budget Office concluded they “will not enhance the ability of the government to pay for future Medicare benefits,” said Ingram.

Linda Gorman, a senior fellow and director of the Health Care Policy Institute at the Independence Institute, said in the discussion of taming runaway Medicare costs, it’s important to differentiate between costs and expenditures.

“The cost issue is huge. We can always reduce costs, but the measurements the government uses are frighteningly bad. When you have a gatekeeper organization that controls care and you provide them a complicated ratio to reduce care, then that is what they will do,” said Gorman. “The only true cost control comes from giving patients meaningful choices.”


Internet Resources:

2012 Annual Medicare Trustees Report: