Topline Summary of Medicare Trustees Report

The official Medicare trustees report is now online – here’s a quick take on the topline points:

• Deficits as Far as the Eye Can See:  Today’s report confirms that the Medicare program is already contributing to the federal deficit – and will continue to do so throughout the coming decade.  Since 2008, the program has run cash flow deficits; this year’s deficit exceeds $32 billion.  The only thing keeping the program afloat financially is the sale of Treasury bonds in the Medicare Trust Fund – and the redemption of those paper IOUs is increasing the federal deficit.
• Insolvency in 2024:  According to the report, even the IOUs will be exhausted by 2024, at which point the Medicare Hospital Insurance Trust Fund will be officially insolvent.  By comparison, the Congressional Budget Office’s March 2011 baseline projects insolvency in 2020.  While last year’s report predicted insolvency in 2029, this year’s trustees report should see an acceleration of insolvency, thanks in large part due to the failed economic policies of the Obama Administration, which have led to prolonged high unemployment and a resulting loss of payroll tax revenues.
• Funding Warning:  For the sixth straight year, the trustees issued a funding warning showing that the Medicare program is taking a disproportionate share of its funding from general revenues, thus crowding out programs like defense and education.  While in theory this development should prompt the President to follow his statutory requirement to submit legislation remedying this funding shortfall, the White House has previously refused to do so – relying instead on a signing statement by President Bush to ignore the need for Medicare reform (and also breaking the President’s campaign promises in the process).
• Unfunded Obligations:  As you can see from the charts below, last year’s trustees report “magically” reduced the program’s stated unfunded obligations over an “infinite horizon” timetable from $88.9 trillion to $36.3 trillion when compared to the 2009 report.  This year’s report increased those obligations to $38.4 trillion – a number demonstrating how badly the program needs immediate reform.  More importantly, even this figure represents an unrealistically low estimate of the program’s long-term financial difficulties, for the reasons laid out below.
• Unrealistic Assumptions:  Once again this year’s report features a statement of actuarial opinion by the Medicare actuary, in which he stated that “the financial projections shown in this report…do not represent a reasonable expectation for actual program operations.”  The actuary has again issued an alternative scenario for Medicare’s unfunded obligations that he views as more realistic, because the major source of Medicare payment reductions included in the health care law may not be sustained over a long period of time. (The link to the alternative scenario document is not yet active.)
• Double Counting:  As a reminder, the Medicare actuary previously confirmed that the Medicare reductions in the law “cannot be simultaneously used to finance other federal outlays and to extend the [Medicare] trust fund” solvency date – making any potential claims that health “reform” will extend the life of the Medicare trust fund highly dubious at best.  As the Associated Press preview of last year’s report noted, “Despite assertions to the contrary by the Obama Administration, the new health care law doesn’t improve Medicare’s solvency by much.”

The trustees report confirms once again that Medicare needs fundamental reform, and soon.  Given that fact, why haven’t Senate Democrats yet revealed how they plan to preserve the program by telling the American people what entitlement reforms they actually support?

Unfunded Obligation Projections for 75-Year Budget Window (2011-2085)

Unfunded Obligation Projections for Infinite Horizon

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