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 itsĀ  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.