Medicare running dry, trustees warn Shortage poses problems for Clinton's plan

April 07, 1993|By New York Times News Service

WASHINGTON -- The Clinton administration warned yesterday that the principal trust fund for Medicare, which finances hospital care for 35 million elderly and disabled people, would run out of money in 1999.

The report by the Medicare trustees underlines a problem facing the administration. President Clinton is drafting an ambitious proposal to overhaul the nation's health-care system and guarantee coverage for all Americans, at an estimated cost of $30 billion to $90 billion a year.

Administration officials have said they want to expand coverage of long-term care and begin covering the costs of prescription drugs.

But, as the trustees reported yesterday, the government does not have the means to pay for the health-care commitments it has already made.

The financial condition of Medicare's hospital insurance trust fund has deteriorated since April of last year, when government actuaries predicted that it would be exhausted in the year 2002.

The trustees said yesterday that the Medicare hospital program was "unsustainable in its present form." They did not say how the government could control Medicare costs or increase revenues to keep the program in operation.

In the past, Congress has invariably taken action to prevent depletion of the Medicare trust fund, by raising taxes or limiting payments to hospitals and other health-care providers. Lawmakers made clear yesterday that they would not let the program go broke.

To worry that the trust fund will run out of money is "like worrying that Mexico is going to invade us," says Rep. Pete Stark, chairman of the Ways and Means Subcommittee on Health. "It's a possibility, but they've shown no indication."

But one trustee, Health and Human Services Secretary Donna E. Shalala, says: "These new estimates show a significant worsening in the economic health of the Medicare program. They reflect many of the problems that we see across the board in our health-care system today, and they are another demonstration of the need for systemwide change."

A major goal of Mr. Clinton's overall health-care plan is to control medical costs. In the past decade, Medicare has adopted fee schedules for hospitals and doctors to slow the growth of Medicare spending, and by most accounts these measures have been effective.

But Medicare outlays continue to rise for many reasons, including an increase in the number of beneficiaries, a general increase in the amount of care each beneficiary receives and greater use of costly technology.

Three of the five trustees are Cabinet officers. The others are not government employees and are supposed to represent the public interest. The public trustees urged Congress to "address the need for fundamental reform" of Medicare as part of its effort to revamp the health-care system. But they did not make detailed proposals.

In an interview, Stanford G. Ross, one of the public trustees, said: "We want Medicare considered as part of President Clinton's health-care reform initiative. We don't want it postponed to a later stage."

In a separate report, the administration said that one of the Social Security trust funds, which pays retirement and survivor benefits, would be in sound financial condition for about 50 years. But it said that another Social Security trust fund, which pays disability benefits, would run out of money in two years.

To deal with this problem, the administration suggested reallocating payroll taxes so that some of the money earmarked for retirement benefits would be deposited in the disability trust fund. Congress would need to pass legislation to make such a change.

But there is no need to increase the overall Social Security tax rate, and the reallocation of money would not cause immediate damage to the retirees' trust fund, the trustees said.

Under current law, the employer and the employee each pay a payroll tax of 5.6 percent for old-age and survivors insurance and 0.6 percent for disability insurance. The tax is applied to the first $57,600 of earnings.

The trustees' proposal would change the tax rates to 5.325 percent and 0.875 percent, respectively. With this change, the trustees said, the retirement fund would run out of money in the year 2037, seven years earlier than expected under current law.

Analyzing the future of Medicare, the trustees observed that there are now four workers for each Medicare beneficiary. By the middle of the next century, they said, the ratio will be 2 to 1. But, they warned, Medicare's hospital insurance trust fund will run out of money "even before the major demographic shift begins to occur."

Part B of Medicare, which pays for doctors' services, has its own trust fund. Beneficiaries pay premiums that cover about one-fourth of the cost. The federal government pays for the remainder each year with general revenues.

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