Medicare Gets a 4-Year Reprieve from Bankruptcy
Policy + Politics

Medicare Gets a 4-Year Reprieve from Bankruptcy


The financial prognosis for Medicare just got a little bit cheerier.

Thanks to a significant slowdown in health care spending this year, the country’s largest health provider for people 65 and older won’t run out of money until 2030—four years later than previously estimated.

That’s according to the federal government’s annual report on the financial stability of the government’s two largest benefit programs—Medicare and Social Security, which account for 40 percent of total federal spending.

Related: Social Security, Medicare Still Face the Abyss

The report released Monday by the Medicare and Social Security trustees—said that while Medicare’s outlook has slightly improved because of a slowdown in healthcare spending, Social Security is still on track to become insolvent by 2033, barring any action from Congress.

The trustees attribute the slowdown in health care spending to a number of factors including cost control measures implemented under the Affordable Care Act as well as slow growth of wages and prices in the wake of the Great Recession. They also said private insurers, including those in Medicare’s managed care program, are also shifting more costs to patients, which has likely contributed to the slowdown in spending.

The trustees have been pushing their estimates back on Medicare’s insolvency target for the last few years. In 2009, before passage of the ACA, they estimated it would become insolvent by 2017 and just three years ago, they said 2024. In 2013, they moved it back to 2026 and this year they pushed it back again.

Related: Sluggish Economy Slams Social Security

Still, they caution that it’s too hard to know exactly what caused most of the spending slowdown and how long it will last.

Public trustee Robert Reischauer said that although the spending slowdown is good news for the program’s solvency (for now), it’s not time to celebrate just yet, and urged Congress to address the program’s spending issues immediately.

"Medicare spending is still projected to grow faster than workers' earnings, retirees' income [and] GDP," Reischauer said in a statement.  "Some might be tempted to conclude from these good news trends that Medicare may be healing its financial maladies all by itself and that no further action will be needed," said Robert Reischauer, the Democratic public trustee, in a statement. "That would not be a prudent conclusion."

The report only includes the financial stability of the trust fund, which is financed by payroll taxes. It doesn’t take into account doctors’ visits and medical services covered by general revenue and premiums.

Related: Medicare’s Latest Wrongful Payments--$6.7 Billion

Still, the trustees said in the long run, both Medicare and Social Security are in danger of going broke and an increase in taxes and reduction in spending will likely be needed to keep the benefits at current levels. After the Medicare trust fund is exhausted, the program will only be able to pay 85 percent of benefits, which would then fall over time.

The trustees estimated that Medicare payroll tax increase needed to close the program’s funding gap would need to be raised from 2.9 percent to 3.77 percent. That applies to all wages and investment income.

‘‘As today’s reports make absolutely clear, Social Security and Medicare are fundamentally secure, and they will remain fundamentally secure in the years ahead,’’ said Treasury Secretary Jacob Lew. ‘‘The reports also remind us of something we all understand: we must reform these programs if we want to keep them sound for future generations.’’

Last year, Medicare covered about 52.3 million people and that is expected to increase as more baby boomers reach retirement age.

The trustees include secretaries of the Treasury, Health and Human Services, and Labor Departments, as well as the Social Security Commissioner and two public trustees from each political party.

Top Reads from the Fiscal Times: