Best answer on when Medicare will run out of funds? Sooner rather than later

July 13, 2011

While the latest trustees report says Medicare is running out of money and time, the program's own actuary questions those projections. What is more certain is that, unless some decisive action is taken, reimbursements to physicians and other providers would be cut 10% by 2024, if not earlier.

While the latest trustees report says Medicare is running out of money and time, the program’s own actuary questions those projections in light of uncertainties about healthcare reform and recovery from the economic recession. What is more certain is that, unless some decisive action is taken, reimbursements to physicians and other providers would be cut 10% by 2024, if not earlier.

In the recent report, the trustees said the future of the Medicare trust fund looks bleaker than originally predicted. They say the fund will run dry in 2024, 5 years earlier than predicted last summer

The last report on the federal program was issued in August 2010. The scenarios of hastened doom and gloom result from the recession, which sent revenue down and spending up.

Medicare trustees say the program is paying out more in benefits each year than it takes in as taxes, and that Americans are living longer. The program’s trust fund report projects that men who turned 65 last year can expect to live an average of another 18.6 years, an extra half-year compared to last year’s report. For women at age 65, last year’s report projected they would live an additional 20.4 years. The current projection is an additional 20.7 years.
   
If the Medicare trust fund were to run out, the program would not be able to pay full benefits. Benefits would drop to 90% starting in 2024, and then to 75% in 2045, trustees say.

The latest reports also raise questions about the validity of the conclusions. Some have called the Medicare figures “suspect” because they rely on the program achieving billions of dollars in savings under the healthcare reform legislation passed last year. The savings depend on many assumptions, including cuts in payments to physicians that Congress has avoided enforcing in the past, and improved productivity from physicians and hospitals, which are still uncertain.

Medicare’s chief actuary, Richard Foster, stated that the projections “do not represent a reasonable expectation for actual program operations in either the short range…or the long range.”  He added that the “current slow recovery from the recent recession adds a significant further element of uncertainty to the trust fund projections.”

Another looming question is whether Congress will raise taxes to reduce federal budget deficits. Such increases could take the form of an increase in the Medicare tax that pays for hospital insurance, as well as payment reductions to providers.

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