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News of the Day ... In Perspective

05/06/2006

Medicare’s financial problems deepen, Trustees say

According to the annual report released May 1, the Medicare trust fund will be depleted by 2018, two years sooner than predicted a year ago and 12 years sooner than anticipated when President Bush took office.

The Medicare and Social Security programs “form the basis of a looming fiscal crisis for our nation as the baby-boom generation moves into retirement,” said Treasury Secretary John W. Snow, one of the trustees.

Senators Charles Grassley (R-IA) and Max Baucus (D-MT) called for the resignation of public trustees Tom Saving and John Palmer, reappointed by President Bush during Easter recess to avoid the need for Senate confirmation (Wash Post 5/2/06).

Saving and Palmer are credited with changing the Trustees report to include annual updates on the value of the unfunded liabilities. This year, the combined Social Security/Medicare unfunded obligations reached $36.7 trillion on a 75-year horizon and $83.9 trillion on an infinite horizon. These figures were not included in handouts provided during a CMS briefing on the report, according to John Goodman of the National Center for Policy Analysis.

The Trustees also reported that in 2006, 12.3% of federal income tax revenues will be transferred to support Medicare; Social Security still has an excess amounting to 5.3% of income tax revenue. If present trends were to continue, Medicare alone would absorb 74.8% of income tax revenue by 2080, and Social Security 17.0%.

As part of the Medicare Modernization Act, the Trustees are required to compare overall projected Medicare expenditures with the program’s “dedicated revenues.” If the difference is projected to exceed 45% of the revenues within the first seven years of the projection period, it triggers a determination of “excess general revenue Medicare funding.” A second such determination next year would trigger a “Medicare funding warning.”

This year is the first to trigger the determination. If it occurs again next year, Congress will be required to consider action on a expedited basis, but won’t actually have to do anything.

The provision was intended to cap the amount of general revenues that could be used to support Medicare. According to a New York Times May 4 editorial, such a cap is “a perverse way to deal with Medicare’s very real financial problems,” because it “removes the most progressive source of funding from further consideration.”

President Bush proposes to create a federal commission on the plight of entitlement programs and to slow Medicare spending by $36 billion over the next five years.

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