Medicare fund for elderly and disabled is running out of money, trustees say

April 12, 1994|By John B. O'Donnell | John B. O'Donnell,Washington Bureau of The Sun

WASHINGTON -- Raising what is becoming a perennial alarm, the federal government said yesterday that the Medicare program that pays hospital costs for the elderly and disabled will run out of money around the turn of the century.

Congress was urged to control costs, in part through health care reform.

In its annual report, the trustees for Medicare and Social Security said the Medicare fund, which paid $93.5 billion in hospital bills last year for 32 million people age 65 and over and for 4 million long-term disabled people, will be out of money sometime between the years 2000 and 2004. This was a slight improvement over projections a year ago, when the trustees said the fund would be exhausted between 1998 and 2000.

Medicare Part B, which pays doctor's bills, is sound, the report said. But it expressed concern that the program has grown 23 percent faster than the economy in the past five years.

The report also warned that a trust fund that covers disabled workers who have paid Social Security taxes will run out of money next year unless Congress acts. It recommended that some of the payroll tax revenue that goes into Social Security's retirement fund be shifted to the disability fund, a move that would leave both funds able to cover benefits for 35 more years. Without that change, the retirement fund would pay benefits for an additional 42 years before running out of money.

Last year, the combined retirement and disability funds paid $302 billion to 42.2 million people.

Health and Human Services Secretary Donna E. Shalala, one of the five trustees, used yesterday's report to make a pitch for President Clinton's health care proposals, saying that "Medicare's financial condition would improve significantly as a result of general cost containment" in the president's plan.

But the two public trustees, Stanford G. Ross, a former Social Security commissioner, and David M. Walker, appeared to differ with Ms. Shalala. They said Medicare's long-term financial problems will need more than the changes proposed in the health reform plans.

In an interview, Mr. Ross shied away from suggesting specific changes in the politically sensitive program. "We need to look at the Medicare program and try to make it more cost-efficient for the government and cost-effective for the elderly," he said.

Ms. Shalala later denied that there is a dispute between the public trustees and the three government trustees -- herself, Treasury Secretary Lloyd Bentsen and Labor Secretary Robert B. Reich.

"I think everybody believes that health care reform will have a significant impact on the Medicare trust fund," she said in an interview.

Any disagreement is over how long the fix will last -- "whether it is 20 years or 40 years," she added.

The president's proposal would fix the Medicare program "certainly for the next 20 years, when the baby boomers hit," said Ms. Shalala. "I think 20 years is sufficient."

The Clinton proposal, which is being substantially rewritten by Congress, would not make major changes in Medicare, keeping it as an independent program and adding prescription drugs to the list of benefits. The plan counts on reducing the rate of increase in health care costs as a way of saving billions of dollars.

None of the proposed congressional alternatives to Mr. Clinton's plan suggests substantial changes in Medicare. Mr. Ross said that he has not detected "a great deal of attention being paid" to Medicare reform on Capitol Hill.

Given the political power of the elderly, Congress would be unable to let the Medicare trust fund go belly-up. The key question is what the legislators would do to fix it and when.

Congress can put the programs on a different financial footing by reducing benefits, increasing payroll taxes or raising the age of retirement and the age of eligibility for Medicare, politically sensitive steps that would be taken without enthusiasm.

The report's long-term projections show the impact of the baby-boom generation as it retires and begins to collect Social Security and Medicare.

Each enrollee in the Medicare hospitalization program is now supported by the payroll taxes of four workers, but by the middle of the next century that ratio will be reduced to one for two, the report said.

The report also projected that by 2068 the Medicare hospital program will represent nearly 6 percent of the nation's output of goods and services, compared with 1.6 percent now, an increase of 211 percent, while the Medicare Part B program will raise from just under 1 percent to nearly 5 percent of the economy, a rise of 370 percent. The retirement and disability trust funds together would increase from nearly 5 percent to nearly 7 percent of the economy, a rise of more than 40 percent.

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