Healthcare Reform Extends Medicare’s Solvency by 12 Years

As discussed my previous blog post in July, both Social Security and Medicare are facing serious financial troubles in the near future as a result of Baby Boomers aging into the programs and rising healthcare costs. Medicare has specifically had a bleak outlook for the next few decades as reports in recent years indicated the program will face insolvency if its obligation to provide benefits to a growing pool of enrollees is not balanced by an increase in tax revenues.

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Medicare Insolvency Pushed Back 12 Years

Trustees of Medicare reported Thursday that cost-cutting measure in The Patient Protection and Affordable Care Act of 2010 have pushed Medicare’s impending insolvency off another 12 years. Because of these provisions in the law, Medicare’s hospital insurance trust fund should remain solvent until 2029. Both the 75 year shortfall for the hospital fund and the projected costs of the Medicare Supplementary Insurance program were further brought down. The trustees warned that though these projections are an improvement over last year’s estimates, additional reforms will be necessary for the programs to be financially sustainable.

The trustees further estimate a new tax on so-called Cadillac insurance plans (the priciest health insurance coverage generally held by highly paid managers and executives) which goes into effect in 2019 will improve Social Security’s finances in the long-term. In the short-term however, Social Security’s financial stability appears tenuous as this year for the first time benefits paid will exceed revenue. Because of the recession this day has come 6 years earlier than previously estimated. The trustee’s report projects that the program’s finances will return to equilibrium for the next several years as the economy climbs slowly out of the downturn. However, the problem of the aging Baby Boom generation remains and though the economy is strengthening more enrollees will soon increase the program’s deficits.

Estimates show that Social Security’s current payroll tax and interest revenue will cover benefits through 2024, but after that the program will begin drawing from its trust fund. This trust fund is not actually a money reserve but rather a complex accounting device which tracks the accumulated surplus. The estimated date by which this fund will empty remains the same as last year’s estimate – 2037. After 2037, payroll tax income to the program will cover only 75% of promised benefits. As a result, unless we want to see reduced benefits and higher taxes to cover the program, America cannot rest on the laurels of this latest reform and must urgently push for entitlement reform to ensure both Medicare and Social Security remain solvent.

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