ElderWeb

The Annual Reports of the Board of Trustees of the Medicare Trust Funds have issued their annual report for 2000. Two years ago the Health Insurance (HI) Medicare Trust Fund was predicted to be insolvent by 2008, and last year's report moved that back to 2015, but this year's report indicates the fund has an additional eight years of life, and won't be insolvent until 2023. (The HI program is also known as Part A of the Medicare program.) HCFA and the White House have issued glowing press releases about the improvement since last year's report, and there are indication that this improvement will spur efforts to add prescription drug coverage to Medicare.

But the report includes some gloomy warnings. It states "Even with these important improvements, however, the HI program remains substantially out of financial balance in the long range...To correct the remaining financial imbalance under the intermediate assumptions, the 2.90 percent payroll tax (for employees and employers combined) would have to be immediately increased to 4.11 percent, or expenditures would have to be reduced by a corresponding amount (or some combination of such changes)...The magnitude of the failure is considerable, even with the improved financial outlook in this year's report."

In an interesting line deep in the trustee's report on the Supplemental Medical Insurance program (SMI or Medicare Part B), the trustees state their projections are based on an assumption that costs per beneficiary, which have been increasing faster than per capita GDP since the inception of the program, will gradually decline and stabilize in the future. The report states, "This assumption may seem at odds with historical experience... However, if the historical trend were to continue for another 75 years, it would result in an SMI program so large as a percent of GDP that it would be implausible given other demands on those resources." In other words, the predictions do NOT mirror the historical trends of the last 35 years, because it seems implausible that costs could continue to rise at historical rates.

It is interesting to compare that to a report, "The Medicare Monster," written by historians Steven Hayward and Erik Peterson. In this report, Hayward and Peterson reflect on cost predictions made at the origination of the Medicare program in 1965 and compare those predictions to the actual costs later incurred. They noted that the House Ways and Means Committee at that time also predicted that costs would not mirror historical trends. The committee report said, "It is inconceivable that hospital prices would rise indefinitely at a rate faster than earnings because eventually individuals?even currently employed workers, let alone older persons?could not afford to go to a hospital under such cost circumstances." In fact, that is exactly what happened!