Despite hand-wringing from editorial boards and conservative think-tanks and members of Congress for years now, the fact of the matter is that Medicare ain’t in such bad shape, according to a new report from the Center on Budget and Policy Priorities:
The 2011 report of Medicare’s trustees finds that Medicare’s Hospital Insurance (HI) trust fund will remain solvent — that is, able to pay 100 percent of the costs of the hospital insurance coverage that Medicare provides — through 2024; at that point, the payroll taxes and other revenue deposited in the trust fund will still be sufficient to pay 90 percent of Medicare hospital insurance costs.  (The Medicare hospital insurance program is considered insolvent when revenues and trust fund balances will not cover 100 percent of projected costs.) Over the next 75 years, revenue will cover an average of 83 percent of Medicare’s hospital insurance costs. This shortfall will need to be closed through the provision of additional revenues, program changes that slow the growth in costs, or most likely both. But the Medicare hospital insurance will not run out of all financial resources and cease to operate after 2024, as the “bankruptcy” term may suggest.
The 2024 date does not apply to Medicare coverage for physician and outpatient costs or to the Medicare prescription drug benefit; these parts of Medicare do not face insolvency and cannot run short of funds. These parts of Medicare are financed through the program’s Supplementary Medical Insurance (SMI) trust fund, which consists of two separate accounts — one for Medicare Part B, which pays for physician and other outpatient health services, and one for Part D, which pays for outpatient prescription drugs. Premiums for Part B and Part D are set each year at levels that cover 25 percent of costs; general revenues pay the remaining 75 percent of costs. The trustees’ report does not project that these parts of Medicare will become insolvent at any point — because they can’t. The SMI trust fund always has sufficient financing to cover Part B and Part D costs, because the beneficiary premiums and general revenue contributions are specifically set at levels to assure this is the case. SMI cannot go “bankrupt.”
The report also notes that the same people–Republicans like Mitch McConnell and John Boehner, and all of the GOP presidential candidates–who claim Medicare is in danger oppose and want to repeal the Affordable Care act, Obama’s healthcare law, which indisputably extended the solvency of the program by at least eight years.