Extended life of Medicare could be short-lived

Yahoo Finance

The death sentence of Medicare is getting an extended breathe of life, according to a new report out from the trustees of the program. Medicare’s hospital fund, which was expected to go bankrupt by 2026, is getting 4 more years added to its lifespan, thanks to savings driven by Obama’s Affordable Care Act. The agency will now run out of hospital funding by 2030.

Should this provide Americans with a little more confidence about the ailing state of Medicare?  Douglas Holtz-Eakin, former director of the Congressional Budget Office, spoke to Yahoo Finance about the issue, saying he was unimpressed with the news. “I’m not surprised. Nor can I guarantee you that next year’s report will say the same thing. These are very uncertain projections, easy to bounce 4 years in one direction or another.”

Holtz-Eakin’s stance is that the core issue remains the inadequate funding of this program, as healthcare costs continue to spiral upwards. There are more than 50 million retirees currently enrolled in the program and the trustees report showed that 10,000 new enrollees are added per day. But unlike previous years, the cost per beneficiary figure remained flat instead of increasing.

Obamacare has driven the steading hand over costs. The program has called for big cuts in Medicare payments to hospitals and health care providers. It has also created new measurement techniques that make the healthcare system more efficient, and in turn, more cost effective.

But Holtz-Eakin says the figure distracts us from the bottom line budget gap. “We really don’t know how much of the recent slow down will be permanent. So that’s the uncertainty. But we do know Medicare is fundamentally out of balance - the projections are for $9 trillion in mismatch between spending going out and revenues coming in. Right now the deficit every year is about $290 billion…yeah, its in a little better shape, but its not in good shape.”

Medicare faces a host of solvency issues driven by higher healthcare costs and a lack of adequate taxpayer funding.  Medicare and Social Security accounted for a combined 41% of last year’s federal spending, according to the trustees report.

Democrats and Republicans in Congress disagree on whether solvency solutions involve higher taxes or reduced benefits and the former CBO director doesn’t believe Congress will have a solution before vacation begins later this week.  “I think we will have another political talking point to fight about during the fall campaign but not much more.”

Approximately 55 million American received social security benefits in May 2014, according to the Social Security Administration.

The prognosis for that program isn’t much better, Holtz-Eakin says more hard times are ahead, “It has a disability trust fund that exhausts in 2016 - that’s soon - and then you get a 20% across the board cut in disability benefits. So they need a real fix in them and need it quickly.”

For the solution, Holtz-Eakin calls on Congress to act fast. “For the retirement program, it is a disservice to have a program that is going to, you know, go bankrupt in less than 20 years, cut retirees benefits by 25%.  There are lots of ways to fix it. Every bipartisan commission comes up with a social security repair plan. So its time for Congress to just do it.”   

Shibani Joshi is the creator of www.ShibaniOnTech.com and can be followed on Twitter @shibanijoshi

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