Medicare Will Be Bankrupt by 2019

Published May 1, 2004

Citizens Against Government Waste (CAGW)–the 20-year-old watchdog group dedicated to eliminating waste, fraud, abuse, and mismanagement in government–on March 25 criticized national leaders for “overseeing the fiscal deterioration of the Medicare program over the last four decades.”

CAGW’s criticism came in response to a report issued a day earlier by the trustees who monitor the fiscal health of Medicare and Social Security. The trustees estimate the fund for hospital bills in the Medicare program will run dry by 2019, seven years sooner than predicted last year, largely thanks to the new Medicare bill. Medicare begins dipping into its trust fund for the first time this year.

“Politicians in Washington ignored this problem for several decades, and then they make it worse by adding a costly prescription drug benefit,” CAGW President Tom Schatz said. “The retirement of the baby boomers will spell fiscal doom for older and younger generations alike.”

“Medicare’s own trustees have confirmed what taxpayer advocates warned about all along,” agreed John Berthoud, president of the National Taxpayers Union (NTU). “A 35 percent increase in the drug plan’s 10-year cost estimate, mounting evidence that employers will dump seniors’ private coverage, and now [the] trustees’ report all add up to an economic doomsday scenario that thoughtful policymakers can’t ignore any longer.”

Berthoud noted full federal drug coverage will go into effect in 2006, thus “lawmakers have only a limited amount of time to prevent what could be the biggest fiscal disaster in U.S. history.”

“Turn for the Worse”

Despite President George W. Bush’s promise that any new Medicare legislation would strengthen the program’s long-term financial security, Medicare’s finances have “taken a major turn for the worse,” according to the trustees’ report. The seven-year adjustment is the largest lurch toward projected insolvency in the program’s 39-year history. Congressional efforts to reduce health care costs are failing miserably, meaning higher premiums for Medicare patients in the near future.

“Congressional attempts at lowering health costs completely miss the mark,” Schatz noted. “They try to import foreign price controls and regulate eating habits when they should be reversing the government’s disastrous intrusion into the health care system.”

The trustees’ report said changes to the law account for two years out of the seven-year acceleration toward fiscal insolvency.

The prescription drug benefit is not included in the trustees’ estimate because it will be funded out of general revenue, not the hospital trust fund that is the main focus of the trustees’ report. Instead, the trust fund will be hurt by other parts of the Medicare reform law, such as subsidizing finances of doctors and hospitals in rural areas. Over the next 75 years, Medicare will have an unfunded liability of $27.7 trillion, $8.1 trillion of that from the new drug benefit.

“Today’s politicians are raiding the paychecks of the unborn to impress senior citizens before the 2004 elections,” Schatz charged. “In the last four months, the bill’s cost rose from $400 billion to $534 billion. Imagine what the cost will be 10 years from now!”

In 1965, Medicare was predicted to cost $26 billion in 2003; the actual cost that year was $245 billion. Medicare’s unfunded liability currently hovers around $40 trillion.

A number of short-term problems plague the massive entitlement program. The program that pays for doctors’ visits unexpectedly ran a $10.3 billion deficit last year and is likely to have one of $1.7 billion this year, despite congressional efforts to prevent such shortfalls. Taxpayers were recently subjected to a round of tax-financed TV ads promoting the new drug benefit. The General Accounting Office is investigating whether the ads qualify as “covert propaganda.”

NTU recommends Congress revise the drug prescription bill with a focus on systemic Medicare reform that will “empower consumers, reduce government control over health care decisions, and avoid mechanisms like price controls.”

Such an approach would include expanded Health Savings Accounts for individuals (one of the only positive features in the recently passed reform measure), equal tax treatment for health insurance purchased outside of one’s employer, and tax credits for the uninsured.

“Fifteen years ago, Congress pulled America back from the fiscal abyss when it repealed the flawed Catastrophic Care law before it could exact a terrible toll on seniors and taxpayers,” NTU’s Berthoud concluded. “Now policymakers should draw upon this historical lesson to protect America from the $8 trillion mistake of a federal prescription drug entitlement.”

Tom Schatz is president of Citizens Against Government Waste. His email address is [email protected].

For more information …

about Citizens Against Government Waste, visit its Web site at

about the National Taxpayers Union, including its research and writing opposed to the prescription drug entitlement, visit its Web site at