Medicare Going Broke

Medicare (search) will have to begin dipping into its trust fund this year to keep up with expenditures and will go broke by 2019 without changes in a program that is swelling because of rising health costs, trustees reported Tuesday.

Social Security's finances showed little change.

The deteriorating financial picture for the health care program for older and disabled Americans is a result, in part, of the new Medicare prescription drug law that will swell costs by more than $500 billion over 10 years, according to the annual report by government trustees.

Provisions of the law that President Bush signed into law in December "raise serious doubt about the sustainability of Medicare under current financing arrangements," the trustees said.

Social Security's projected insolvency date remained 2042.

The 2019 go-broke date for the Medicare trust fund (search), which is devoted primarily to paying beneficiaries' hospital bills, is seven years sooner than what the trustees projected last year.

The trustees' report is the first official estimates of the long-term costs of the Medicare law. Like last year, the trustees said that projected lower tax receipts devoted to the program and higher expenditures for inpatient hospital care also contributed to the growing financial problem.

White House spokesman Trent Duffy said the rising cost of health care - and not the prescription drug program - are causing Medicare costs to swell. "It's health care costs - over 70 percent," he said. "Not prescription drugs."

Government officials have been predicting for years that the retirement insurance and health care funds for the elderly - both financed through payroll taxes - will be pushed toward insolvency as more post-World War II baby boomers reach 65.

Provisions of the law that President Bush signed into law in December "raise serious doubt about the sustainability of Medicare under current financing arrangements," the trustees said.

Last year, Medicare's insolvency date was moved up to 2026 from 2030. The projected insolvency date for Social Security (search), on the other hand, was extended to 2042, one year later than what was forecast in 2002.

The 2003 report also projected that Medicare will have to begin dipping into its trust fund in 2013 to keep up with expenditures - three years sooner than what was predicted in 2002. The trustees said then that Social Security expenditures will start exceeding tax receipts for the program beginning in 2018.

Republicans pressed for the overhaul of Medicare last year to give private insurers a much larger role in the program as a way, Bush and others said, to control long-term costs.

But the government's own projections are that private managed care plans will cost taxpayers more than traditional Medicare for the foreseeable future.

A big reason for an earlier insolvency date "will be a direct result of increased payments to private health plans," said Terri Shaw, an analyst with the liberal Center for American Progress (search).

The trustees also are expected to employ a new expanded timeline for their projections - from 75 years to an "infinite horizon." That approach takes into account "not only people who are participating today, but all future generations who will pay taxes and draw benefits," said a report co-authored last fall by Thomas Saving, a trustee who teaches economics at Texas A&M University.

That report suggested shortfalls in Social Security and Medicare would be nearly $50 trillion.

Several analysts and Democratic congressional aides said the longer timeframe was meant to create a sense of crisis by Republicans who want to reduce the government's role in the programs in favor of private, individual investments.

Small differences in assumptions can produce major swings in projections, they said, pointing to the $139 billion difference over just 10 years in the estimated cost of the Medicare law between congressional budget analysts and Medicare's actuary.

The trustees' report is based on the estimates by Medicare actuary Richard Foster.

Democratic aides on Capitol Hill provided a mock timeline Monday that showed how the future colonization of Mars could bring with it new, greenish taxpayers who would alter the long-range projections.