Older Americans and their adult children can be frightened or at least puzzled by the annual reports of the Medicare Trustees. Each year a report makes financial projections for the fund that pays for senior health care expenses (Medicare). Almost every year some politicians spin dire scenarios about the “certain” near bankruptcy of Medicare. The image at the right illustrates a less certain outcome — showing that annual trustee projections vary widely and are highly unstable over time.
While it’s true that all of us are going to pay more for our Medicare benefits because, no matter what we are paying now, in today’s world most of us live longer and pay in far less than the amount we will use in benefits. (See my post Does Part D Stand for Deficit? that describes how much I am putting in and how much I may get out in benefits.) This graph on the right illustrates that over the last 40 years, annual solvency projections vary widely. From this graphic, plotted by the Kaiser Family Foundation and using 40 years of annual reports, one can conclude that the state of the economy plays a big role in the predictions made by the report.
By law the trustees are the Secretaries of the Treasury, Health and Human Services, Labor, and two additional public trustees, who are appointed by the President and confirmed by the Senate. The chief actuary and staff draft the report for the trustees.
The latest report (May 2011) estimates that the Medicare Part A Hospital Insurance Trust Fund will be exhausted by 2024, 5 years earlier than last year’s projection due to revenue declines during the recent economic downturn and higher Part A (hospital) spending.
What causes the discrepancies in the annual reports? The primary factors include uncertainty in projecting changes in:
- the economy,
- population size, and
- use and cost of medical care.
Where does the money come from to pay our Medicare claims? Money is put into the Medicare Trust Fund. The revenue comes from taxes — a percentage of payroll earnings, paid by both workers and employers.
Medicare Trust Fund expenditures relate to:
- the number of beneficiaries,
- their use of care,
- the cost of care, and
- the effectiveness of care as it affects lifespan (we are living longer).
This graph indicates that the farther into the future the trustee reports project, the more uncertain the projections may become. Hence, annual reports are inherently unstable and should be only one factor considered as we plan to ensure the future of Medicare, a program that so many people want.
Data Source for KFF graphic: Intermediate projections from 1970-2011 Annual Reports of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.
Learn more about Medicare with this FAQ from Medicare.gov.