Slow Recovery Worsens Financial State of Medicare

The New York Times reports

“WASHINGTON — The financial outlook for Medicare deteriorated in the last year because of the sluggish economic recovery, and the program’s hospital insurance trust fund will be exhausted in 2024, five years earlier than projected last year, the government said Friday.

The estimates, in the annual report by the Medicare trustees, were immediately swept up into the already inflamed political battle over federal spending, debt and the future of entitlement programs.

The trustees said that payroll tax revenues, which provide most of the money for Medicare’s hospital insurance trust fund, were lower than expected last year because earnings were “considerably lower than projected” and the economy was weaker than expected.

Republicans said the bleaker picture for Medicare showed a need for immediate action to shore up the finances of the program, which insures 47.5 million people who are 65 and older or disabled.

“The biggest threat Medicare faces right now is the status quo,” said the House speaker, John A. Boehner, Republican of Ohio. “The trustees’ report makes it clear that if we do nothing, Medicare will not be able to pay promised benefits to American seniors.”

Democrats said that the financial outlook for Medicare would have been much worse without the new health care law. The law, which President Obama cites as one of his greatest political accomplishments, promises to be a central point of conflict in the 2012 presidential election.

Without the new law, said Kathleen Sebelius, the secretary of health and human services, “Medicare would have gone bankrupt in 2016, only five years from now.”

Senator Max Baucus, Democrat of Montana and chairman of the Senate Finance Committee, said, “The current economic crisis has hit the Medicare trust fund, and hit it hard.” Mr. Baucus, an architect of the new law, and other Democrats vowed to resist Republican efforts to repeal it.

The trustees said the financial outlook for Social Security had changed little. They said the Social Security trust fund would be exhausted in 2036, one year sooner than projected in last year’s report, and even then, they said, tax revenue would be sufficient to pay three-fourths of promised benefits through 2085.

It is inconceivable that politicians would allow either program to run out of money. The projected dates of insolvency are widely used as a measure of the financial condition of Social Security and Medicare, which together account for more than one-third of all federal spending.

In unveiling the new estimates, Treasury Secretary Timothy F. Geithner, the managing trustee of the trust funds, noted the need for additional borrowing to keep the government’s myriad commitments in other programs.

“On Monday,” Mr. Geithner said, “just three days from today, the United States will reach the debt limit set by Congress. Because Congress has not yet acted, we have now set in motion a series of extraordinary measures that will give Congress some additional time to raise the debt limit.”

As a condition of increasing the debt limit, many Republicans are demanding changes in benefit programs. But House Republicans have discovered that they are playing with political dynamite when they propose major changes in Medicare.

The reports were signed by the six trustees: three cabinet officers, the Social Security commissioner and two public representatives.

The Medicare report included a disclaimer by the chief Medicare actuary, Richard S. Foster. “The financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations” in the short term or the long range, said Mr. Foster, a civil servant whose independence is protected by law.

The projections assume that Medicare will cut doctors’ fees by 29 percent on Jan. 1, as required under current law, but Congress routinely intercedes to block such cuts.

Moreover, the report says that projected Medicare costs over 75 years are about 25 percent lower because of the new health care law.

Under the law, Medicare will hold down payments to hospitals and other health care providers to reflect presumed increases in productivity. But, Mr. Foster said, if these constraints are kept in place, Medicare payments to providers will eventually be “far below the levels paid by private health insurance.”

“Well before that point,” Mr. Foster added, “Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result.” This, in turn, would “lead to far higher costs for Medicare in the long range than those projected” in the report, he said.

The report on Social Security predicts that beneficiaries will receive a cost-of-living increase of seven-tenths of one percent in 2012. Because of low inflation, beneficiaries did not receive increases this year or in 2010.

Turning to the long-range outlook for Social Security, the trustees said the gap between income and costs over the next 75 years would be somewhat larger than projected in last year’s report. One reason is that the trustees now believe that people will live longer, thus lowering mortality rates for the population 65 and older.

Population experts have said for some years that Social Security was underestimating gains in life spans likely to occur in the 21st century.

The trustees also revised their estimates of immigration. Because of the weak economy, they said, the number of immigrants entering the United States is assumed to be lower than in last year’s report. This adversely affects the long-range financial outlook for Social Security because “immigration occurs at relatively young ages,” and taxes paid by immigrant workers help finance Social Security benefits for retirees.

The trustees sounded an alarm about financial problems in Social Security’s disability insurance program. The trust fund for this program will be exhausted in 2018, they said, “so legislative action will be needed as soon as possible.”

In a joint statement, the two public trustees, Charles P. Blahous III and Robert D. Reischauer , warned, “The financial shortfalls confronting both Social Security and Medicare are substantial and — absent legislation to correct them — quite certain.””