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  • Medicare’s Deteriorating Financial Condition

    The just released 2011 Medicare trustees report does not contain any big surprises. Much of what the trustees say in this report they have said before: Medicare poses enormous challenges for patients and taxpayers alike, and its financial condition continues a downward slide. Some key findings:

    • Medicare’s unfunded obligations increased by $2 trillion. A key indicator of the true cost of the program is the cost of the promised benefits that are not financed by dedicated revenues. Using their standard 75-year projection (2011–2085), the trustees estimate this year that Medicare benefits promised that are not paid for amount to $24.6 trillion, compared to their projection of $22.5 trillion last year. These and other projections in the report are based on current law, including the official assumption that the estimated $575 billion in savings from Medicare provider cuts under Obamacare will be sustained, as well as the 29 percent reduction in Medicare physician payments in 2012. The Medicare trustees concede the point: “Although the long-term viability of some of these provisions is debatable, the annual report to Congress on the financial status of Medicare must be based on current law” (emphasis added). Different assessment and different accounting techniques, of course, can yield different estimates of these long-term costs. Based on an alternative scenario of projected costs and spending that many analysts considered more realistic, the Medicare actuary in 2010 estimated the long-term Medicare debt at $34.8 trillion. The Medicare actuary has yet to offer his alternative assessment for 2011.
    • The financial condition of the Medicare Part A trust fund is worse. The Hospitalization Trust Fund—the part of the program that pays seniors’ hospital bills—is in worse shape than reported last year. The Hospital Insurance (HI) Trust Fund is going to be exhausted in 2024 rather than 2029. While the fund has started running big annual deficits ($32 billion in 2010 and $34 billion in 2011), the five-year acceleration of the fund’s exhaustion has been aggravated by a combination of higher hospital spending and the consequent reduction in the payroll tax receipts resulting from the economic downturn. When the HI fund is exhausted, obviously it cannot pay benefits. Congress would have to replenish it with higher taxes. One more point: It should be noted that the most recent Congressional Budget Office assessment of the trust fund (March 2011) is more pessimistic and projects an exhaustion in 2020.
    • The “Medicare Funding Warning” has been issued again. Under current law, the Medicare trustees are required to issue a Medicare Funding Warning. This means that general revenues will account for more than 45 percent of Medicare’s total outlays. The 45 percent threshold for such funding, in contrast to dedicated revenues, is officially “excessive” under current law. In this year’s report, the statutory threshold has been reached again this year, as it was last year, and the President is required to develop a proposal to transmit to Congress to deal with the problem.

    This year’s trustees report only confirms the seriousness of the financial challenge posed by an unreformed Medicare program. Over the full 75-year budget window for the entitlements, about 90 percent of the growth of Medicare and Social Security is going to occur by 2035. The baby boom generation, to be supported by a relatively smaller workforce, will drive costs to new levels. That is indeed why The Heritage Foundation’s comprehensive reform proposal, Saving the American Dream, takes on an even greater urgency.

    Posted in Obamacare [slideshow_deploy]

    9 Responses to Medicare’s Deteriorating Financial Condition

    1. Dale Brimley, Murray says:

      I am a medicare recipient, yet realize that a major cut in benefits or premium increase to me and my wife will be necessary. I believe that Medicare should operate on a basis not requiring tax-payer support.

    2. Vermon Boyett says:

      Medicare/Medicaid has been a neglected issue. There has been no adjustment to the the income wage tax percent since 1986. That last adjustment was to 1.45%. The baby boom issue has not been an unknown. If this program had been monitored and adjusted up to 2008 at a reasonable,when the baby boomers started entering the retirement community, it is possible that it would be at a sustainable income level. Using the adjustment rate of the first 20 years, we could could have been at a rate of 2.35% for 2008. This would be providing a 62% increase to the income when compared to the 1.45%. THIS IS NOT A POLITICAL–it is an issue of responsibility.

    3. George Colgrove, VA says:

      Dale Brimley, Murray

      This country desperately needs more people like you.

      I have heard more people like you who understand the need to cut back on your personal benefits, where many in the government like the self-serving DoD federal workers are still demanding increases to their allready high budgets.

      Cuts have to happen everywhere and you sir understand that.

    4. Mike, Wichita Falls says:

      Our political branches must choose between angering younger or older voters. Scale back benefits today at the loss of the older voters, or increase taxes today at the loss of younger voters. Well, maybe there is a third option that will direct the anger of younger voters not at the politicians but at the evil rich…increase payroll taxes on only employers which will increase unemployment or at least delay this so-called recovery. The statist loves class warfare.

    5. Kelly, PA says:

      Owning a ltc facility, I see how these cuts effect people everyday. There is no quick and easy fix for this problem, and it honestly comes down to people preparing now for their future. You really must look at the costs of what it takes to care for someone and purchase good ltc insurance in order to help pay for it. With costs at facilities averaging $3-6,000 per month, this does not include your medical insurance costs, copayments and the like. Medicaid only steps in when someone is in a skilled facility-not at home or in assisted living or personal care, so all costs are out of pocket. We cannot continue to expect the government to pick up the tab for our medical care because this only adds to the burden for future generations. It truly comes from a sense of entitlement-which I get-but no one is responsible for your future except you!

    6. Pingback: The Medicare Crisis is Here | RedState

    7. Pingback: The Medicare Crisis is Here | Tea Party Base

    8. Pingback: The Medicare Crisis is Here


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