Medicare’s Health

Medicare is facing serious financial problems in the next decade, exacerbated by the recent passage of a prescription drug benefit the price of which now appears to have been grossly underestimated by its advocates, an annual report of the program’s trustees concluded this week. Social Security is also facing problems, but they are less pressing, according to a yearly report issued by that system’s trustees.

Although many of the numbers in the trustees’ reports sound dire, some problems are overstated and, given that predicted “asset exhaustion” is years away, there is time to craft new policies that avert the crisis. With Medicare, a good first step would be a real discussion of reigning in health-care costs without following the Bush administration’s push toward privatization, which will cost more in the long run.

The Hospital Insurance Trust Fund, which helps pay for hospital, home health, skilled nursing facility and hospice care for the aged and disabled, is projected to run out of money in 2019, seven years earlier than the trustees predicted in last year’s report. This is because expenditures were higher than expected, due in part to increased payments to private health plans and rural hospitals as part of the Medicare overhaul, and the payroll taxes collected to fund the trust were lower than expected due to slow wage growth. The changes in the Medicare law, including the new prescription drug law that the White House now says will cost $530 billion over 10 years, passed last year, worsened the problem, the trustees wrote.

Total Medicare expenditures were 2.6 percent of the nation’s gross domestic product (GDP) in 2003. With the implementation of the prescription drug benefit, total expenditures are expected to rise to 3.4 percent of GDP in 2006. Expenditures are then predicted to rise rapidly to 7.7 percent of GDP in 2035 and 13.8 percent in 2078. By 2078, Medicare costs would be twice those of Social Security.

While there is time to avert disaster, some difficult choices likely will have to be made, according to Marilyn Moon, vice president of health programs at the American Institutes for Research and former public trustee for the Medicare and Social Security trust funds. Either more money will have to be taken in by raising taxes or less money spent either by enrolling fewer people, paying for fewer services or, better yet said Ms. Moon, a national effort to slow the growth in all health care costs.

The time for that discussion is now. The same is true for Social Security. According to its trustees report, also released Tuesday, that fund’s exhaustion date remains 2042, which leaves plenty of time for fixes.

Lawmakers should keep in mind is that revenue was available to prop up both systems without making any changes. If the 2001 and 2003 tax cuts are made permanent as the Bush Administration has proposed, their cost over 75 years will be $10 trillion to $12 trillion – about three times the Social Security shortfall and about the same size as the Social Security and Medicare Hospital Insurance shortfalls combined, according to the liberal Center on Budget and Policy Priorities.

Medicare and Social Security are not in immediate peril, but improving them now will avert problems later.