Medicare headed for a cliff

The L.A. Times reports that Medicare is in frighteningly bad shape. Again.

The huge Medicare fund for inpatient hospital care will not be able to cover the full amount of billings beginning in 2018, two years earlier than estimated last year. The Medicare fund has been in dire straits before as recently as 1997 it was only four years from insolvency but with 78 million baby boomers about to become eligible for benefits, the challenge now is far greater.

Medicare now comprises three programs: Part A, which covers inpatient hospital costs; Part B, which pays for outpatient costs and doctor visits; and now Part D, the prescription-drug benefit. Part A gets its money from a trust thats funded by payroll taxes. Part Bs money comes largely from general tax revenue. And Part D is funded by a combination of general revenue and premiums paid by participants in the program (assuming anyone signs up).

The Bush-backed 2003 Medicare law that added the prescription-drug benefit also included a peculiar rule regarding how the program's solvency is calculated. The Center on Budget and Policy Priorities explains:

Under a provision of law enacted as part of the 2003 Medicare prescription drug bill, the annual Medicare Trustees report is required to include an estimate of the year in which general revenues will account for more than 45 percent of Medicare funding. If the projections in two consecutive trustees reports indicate that this portion will exceed 45 percent within the next six years, the President is required to submit legislation to reduce the portion to less than 45 percent. In his latest budget, President Bush has proposed amending this provision to require automatic cuts in Medicare every year once the 45-percent point is reached.

As CBPP's report on "the 45-percent trigger" argues, this rigs the system so that fixes involving funding increases from the general revenue (progressive taxation) become almost impossible. This leaves cutting expenditures (as Bush suggests) or raising payroll taxes (regressive taxation). With health-care costs rising across the board, and a pricey prescription-drug benefit sapping Medicare's coffers, how much longer before the system buckles?

What's the end game here, do you think?

Grant Gallicho joined Commonweal as an intern and was an associate editor for the magazine until 2015. 

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