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Reality Bites: Medicare Insolvency Coming Sooner Than Expected

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

Friday the 13th was a scary day for anyone concerned about the future of Medicare and Social Security. The annual report of the programs' finances showed Medicare's Hospital Insurance Fund is now projected to be insolvent in 2024, five years earlier than previously projected. Separately, the insolvency date for the Social Security Trust Fund was revised to 2036 from 2037.

The changed projections is "a little bit about economics," says Joseph Antos, the American Enterprise Institute's Wilson H. Taylor Scholar in Health-care and Retirement Policy; namely, sluggish growth means the trust funds aren't collecting as much payroll taxes as anticipated.

But the "real story is…rapidly rising Medicare costs that are outstripping the ability of taxpayers to cover it," Antos says.

Because Medicare has been funded by the interest on the trust funds' holdings since 2008, the programs are "already in the hole [and] living on borrowed time," he notes; last week's announcements means there's just less 'borrowed time' available before the programs become insolvent.

Even worse, the latest projections include cost savings mandated by the Obama Healthcare Reform most experts say are unlikely to occur, most notably including steep cuts to reimbursement for healthcare providers. "The financial projections shown…do not represent a reasonable expectation for actual program operations," declared Medicare chief actuary Rick Foster.

Antos warns that failure to act to really reform the entitlement programs means:

  • Higher payroll and income taxes
  • Raised retirement age.
  • Cuts to benefits.

"We're going to see a change in the deal the government has promised everybody," he says. "The promise for Medicare is essentially all of your health-care services will be covered. The reality is having this open-ended entitlement just isn't going to work out for anyone of us."

Check the accompanying video to hear Antos' take on Rep. Paul Ryan's (R-Wisc.) plan to reform Medicare, which GOP President nominee Newt Gingrich this weekend criticized as "right-wing social engineering."

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com