Medicare Bankrupt in 6-8 Years Without Rationing

Think rationing is impossible in the US? Medicare will soon be bankrupt, and the government will have to spend its healthcare funds in a limited, rationed way.

Medicare’s annual spending exceeded revenue brought in from taxes in 2008, forcing Medicare to begin spending its reserve funds. According to the Medicare Trustees, Medicare’s reserve will be empty by 2017, and Medicare will have to cut benefits or payment rates by 19% to balance its budget [1]. Since the projected date of Medicare’s bankruptcy has been brought forward many times [2], it’s likely that the actual date of bankruptcy may be as early as 2015.

This should come as no surprise to observers of US healthcare policy, since Medicare has limited funds, but nearly unlimited liabilities. Medicare will pay for almost any treatment that a licensed doctor provides, without regard to the effectiveness of that treatment, or its own ability to pay for that treatment.

In the past, politicians have paid for Medicare’s growth through borrowing. That route will be unavailable this time, as US government debt will exceed GDP by next year, and could be over 120% of GDP by 2017. Raising taxes will be difficult as well, since tax revenues will have to be increased just to pay for the existing debt! If Congress and the President fail to curb Medicare cost growth as part of health care reform, the cuts in 2017 will look a lot like California’s budget, where the state was forced to cut $16.1 Billion (18%) from its  in state services across the board.

The current health care reform plans have introduced a variety of cuts in Medicare, which may reduce costs in the short term. But none of the plans under consideration address Medicare’s root problem: Medicare is not allowed to say NO. Rationing health care is not part of the current health care discussion, but it happens covertly today, and it will become the norm. If Medicare is to avoid insolvency, the government will have to decide when some procedures just aren’t worth doing. Seniors should be allowed to pay extra for those procedures, but Medicare will have to limit its responsibility. If you don’t believe me, look at California, where they finally learned that when the money’s gone, it’s gone.

[1] The Medicare Trustees’ Report Summary can be found at: http://www.ssa.gov/OACT/TRSUM/index.html

The fiscal situation referred to in this post refers specifically to the solvency of the Medicare Part A, the Hospital Insurance (HI) fund. Other parts of Medicare are in slightly better shape, but not by much. In 2017 the HI fund will have revenue for 81% of benefits, but in 2035 it will have revenue for only 50% of benefits.

[2] The Medicare Trustees note that the 2008 Report projected a Medicare HI Fund insolvency date of 2019 – it was brought forward 2 years this year. The solvency calculations also assume that Medicare will cut payments to medical providers based on a Deficit Reduction Act formula – but every year from 2003-2009, these cuts have been rolled back. The likely date of insolvency may move forward by a few more years as a result.

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16 Comments »

  1. Norris Hall said

    So Medicare is going bankrupt??

    Here’s a novel solution. Decrease the cost of services! No…not by cutting back on benefits but by allowing medicare patients to receive far less costly services overseas.
    In countries like Mexico, Singapore, Thailand, India, and New Zealand medical care is a mere fraction of what it costs in the United States.
    For example, at Bumrungrad Hospital in Bangkok, Thailand’s premier hospital accredited by the JCI and featured in “60 minutes” segment on medical tourism, the cost of things like hip replacements an, heart bypasss surgery cost 1/6th to 1/10th what it would cost in the United States. And this is at the most expensive 5 star private hospital in Thailand.
    Right now medicare patients are limited to doctors and hospitals in the United States where The high medical services continues to outstrip inflation year after year.
    Allowing medicare patients to go abroad for medical care would go a long way to cutting cost Medicare costs and add more competition to reign in medical costs in the US.
    Of course the AMA will do everything they can to oppose something like this
    But some insurance companies and employers are starting to get on board and offer less expensive treatments abroad as part of a workers health insurance package.
    Already hundreds of thousands of uninsured Americans are going abroad for medical treatments (Google “medical tourism”).
    It’s time to let medicare patients do the same thing

    • Richard said

      So your solution is to send sick people to Thailand? They can’t afford healthcare, so how do you suppose they are able to afford a ticket to Thailand? Should the tax payer pay for that as well? People who live on Section 8, Collect Food Stamps, Welfare and are on Medicaid/Medicare, can’t afford that……. They why they want free healthcare.

      The people who are already going overseas to get treatment HAVE THE MONEY TO DO IT!

      • Richard said

        Excuse me, That’s why they want free healthcare. I hate typos.

  2. Norris,

    I think increased competition, including medical tourism, are a part of the broader health care reform solution. But for Medicare in particular, the fundamental problem is that the government has limited funds, while people will place almost unlimited demand on the healthcare system at the end of their lives.

    If you’re dying, and care is free, why not try to get everything done that you can? Medicare, like government-financed health care systems worldwide, will have to draw a line in the sand. Some governments do this via waiting lists, others by increasing out-of-pocket expenses for the insured. America will have to make its choice soon.

    • Richard said

      The thing is, nothing is free. If “you” aren’t the one paying for it, someone else is. Welcome to America. Now get a job or start your own business. NO MORE HANDOUTS!

  3. kerry said

    so, Obama and Pelosi want to create another govnt run program? And Obama claims he can pay for it with money saved from eliminating waste and fraud in Medicare? Why not first start on eliminating waste and fraud before starting another massive entitlement? Why are lunatics running our country?
    People wake up!

  4. [...] for the sake of our growing numbers of seniors too, seniors who must rely on Medicare and Medicaid, programs that could very well go bankrupt in less than a decade without higher taxes being levied on… if healthcare reform is not passed. We simply must bend the healthcare cost curve and [...]

  5. James R Richmond said

    I believe a larger truth for our time is the proprietors of medicare are bankrupt. Honestly they have been since 1929, but we trusted in a monster ponzi scheme called the US Federal Government and they keep running that old bait and switch in from the wings. There is no free lunch, the only money the governments have is the money they take from you and I. And they aren’t terribly efficient at managing it. So in addition to the real costs, we have a colossal administrative cost that is never disclosed but simply folded back in on the QT. “Well the grandchildren will pay for it!” Well brother WE are the grandchildren of that bullshit FDR era, and it looks like the bill is coming ‘due and payable’. JR Richmond

  6. [...] taxes and another $500 billion from Medicare supposed to reduce the actual costs of health care?  That $500 billion in cuts from a Medicare system that is already on the verge of collapsing will either have to be given back to Medicare in the form of more deficit spending, or elderly [...]

  7. [...] Watch B. Hussein himself ridicule those slow-witted, ignorant opponents of his compassionate efforts to do splendid and magical things for the American people, in that charming, condescending way that he has, describing a silly, bitter clinger who wrote to him decrying government-run health care and concluded by saying “keep your hands off my Medicare.” That’s a real leg slapper. It’s almost as funny as this little rib tickler: [...]

  8. [...] enacted healthcare reform law begins cutting Medicare in earnest, but deeper cuts will be needed to prevent Medicare’s insolvency. These cuts will inevitably mean less spending, and less revenue opportunities for big pharma, [...]

  9. For whoever wrote this great piece,

    I have been trying for 8 years to get anyone in Washington to run SSA/Med numbers with a couple of different metrics for life expectancy. The 2002 report used 9 years as the likely increase in life expectancy. I can’t get anyone to respond. Not SSA, CBO or anyone in Congress.

    Nine seems low to me considering the increase in life expectancy for the last two centuries was 29 (19th century) and 12 (18th).

    Inadvertently, SSA helped me out this year. The new projections show the unfunded mandate to be about $47T from both programs. This, oddly, was up from their 2002 projection of $23.5 T for both programs. Digging further, I discover that they have raised the life expectancy increase to 11.5 this year from 9 in 2002. A 2.5 year increase doubled the debt.

    I would love to see the debt numbers for life expectancy increases of 15 or 20 or 25 years. T

    These budgets are Enron-like at best. They do not describe reality.

    Tom

  10. PS.

    You speak about spending reserve funds in the article. There are no reserve funds. Those were spent long ago as part of the general budget.

    Medicaid was underfunded $300 million this year. Between social security and Medicare, the unfunded mandate through 2050 is $47 trillion, of that $39 trillion is Medicare.

    That trainwreck is already pulling into the station.

    tom

  11. Observer said

    Keep working till lay down a die.

  12. [...] I don’t think that word means what you think it means. [...]

  13. [...] may well be dead by then… Share this:TwitterFacebookLike this:LikeBe the first to like this. [...]

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