Medicare Insolvency Looming
The latest report issued by the Medicare Board of Trustees stated that the program will become insolvent by 2019. Last year’s report also set in to motion the 45% cost trigger warning which forces the President and Congress to address the issue sometime this year.
When Congress created a universal prescription drug benefit with the Medicare Modernization Act of 2003 (MMA)–adding an estimated $8 trillion to the program’s long-term unfunded liability–it enacted a “cost containment” mechanism designed to control excessive general revenue funding for Medicare.
That amount becomes “excessive” when it funds more than 45 percent of the total Medicare outlays. The “trigger” for presidential and congressional action is when two consecutive Medicare trustees’ reports project that the “excessive” threshold will be met within seven years.
The Medicare program was initially to be funded through the use of payroll taxes but the explosive growth of healthcare costs has far outstripped it’s ability to fund the program. Most of the attention lately has been given to Social Security but in contrast that program isn’t expected to become insolvent until 2041.
The program’s growing financial woes has been accumulating for years and the cost trigger warning does little in of itself to address the long term unfunded liabilities, as it only concerns the 45% general revenue funding level. To deal with the program’s liabilities, the government can either raise taxes, cut benefits or lower healthcare costs.
Obviously controlling healthcare costs would be the best possible solution, but seeing as no one in the government has figured out how to do that yet, that only leaves the two unpalatable options. What ever they do decide to do, they need to do it quickly because time is running out.
