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Medicare is not going broke

Have you heard the news? Medicare will run out of money in just four years. Can the program survive?


Have you heard the news? Medicare will run out of money in just four years. Can the program survive?

Four years is the time until the Trust Fund that provides financial support for Medicare will become insolvent – that is, according to a prediction that the Fund's Trustees made in 1997. Then in 1998, they upped the timeframe to ten years and in 1999 to 16. They shrank it back to 12 years in 2006 and to eight in 2009.

The Trustees first projected an insolvency date for the Trust Fund in 1970, when they predicted that it was just two years away. Since then, the timeframe has varied wildly, reaching a high of 28 years under projections made in 2001 and 2002.

This year, the projection is for eight years, falling from 12 a year ago. That has led to dire predictions that Medicare as we know it is unsustainable. But after almost 50 years of fluctuating projections, the program has not gone under yet – and it is not likely to do so anytime soon.

The Medicare Trust Fund contains the proceeds of the payroll tax that all working Americans pay. It supports the cost of Part A of the program, which covers hospital care. It has no role in supporting Part B, which covers physician services, and Part D, which covers prescription drugs. While there is a separate trust fund for Part B, it is continually replenished with general tax revenue, so it can never become insolvent.

Even were the Trust Fund to become insolvent, Medicare is still projected to have enough money to pay 91 percent of claims. The shortfall could be remedied in a number of ways, like raising the payroll tax or reducing provider payment rates. Medicare would not be broke, and hospital coverage would continue.

And as past projections demonstrate, predicted dates for insolvency do not mean that it is inevitable. The projections are the Trustees' best guess as to the date on which the Trust Fund will run out of funds based on current trends in medical spending and tax revenue. Those factors change every year, as the past gyrations in insolvency projections make clear.

This year's tighter timeframe primarily reflects factors that would be easy to change – the Trump administration's health care policies as implemented by Congress. Those policies weakened the Affordable Care Act, which had significantly strengthened the Trust Fund's finances. The year after the ACA took effect, the insolvency timeframe shot up from eight years to 19. In particular, Congress's repeal of the ACA's individual insurance mandate set to take effect in 2019 will increase the number of uninsured, forcing Medicare to raise hospital payments to account for their care. The ACA also established an independent advisory board to cut costs, which Congress also repealed.

So, if you find the shorter Medicare timeframe concerning, the main culprit is clear. It is not the structure of the program or the ACA. It is the Trump administration's policies, which are undermining the financial stability of much of our health care system.

Certainly, Medicare faces other long-term financial challenges as medical costs continue to rise and the number of beneficiaries grows. Policies to address those concerns are urgently needed.  But the most recent Trust Fund financial projection is a diversion from those more serious issues. The Trust Fund could be as solid as ever, if Congress were to put the ACA back on track.

Robert I. Field, JD, MPH, PhD, is professor of law and public health at Drexel University and is the founder and editor of the Health Cents blog.