March 18, 2003

March 18, 2003 | WebMemo on Health Care

The 2003 Trustees' Report on the Medicare Program

The Boards of Trustees of the Social Security and Medicare programs have just released their report on the financial status of the programs. The Trustees report that both programs are currently running surpluses, but they both will slide quickly into deficit status with the retirement of the huge baby boom generation, which starts in eight years.

 

Unsustainable Pressures. Say the Trustees, "The growing deficits will lead to rapidly mounting pressures on the federal budget in a decade an exhaustion of trust funds beginning in little more than two decades that will not permit full payment of currently scheduled benefits. In the long run, these deficits are projected to grow at unsustainable rates." [1] Some other key findings:

  • The Medicare Hospitalization Trust Fund faces Bankruptcy Sooner. In their previous report, the Trustees said that the HI Trust Fund would be exhausted in 2030; this year the Trustees say that, under current law, it would be exhausted in 2026. The Trustees also say that the HI program starts running in the red (meaning projected income falls short of projected outlays) in 2013, instead of 2016, the date they projected last year.[2]   
  • The Financial Challenges facing Medicare are Greater than those Facing Social Security. Say the Trustees "While both programs face essentially the same demographic challenges, health care costs per enrollee are projected to rise faster than the wages per worker on which the payroll tax is paid and on which Social Security payments are based. As a result, while Medicare's annual costs are currently 2.6 percent of GDP, or less than 60 percent of Social Security's, they are projected to reach 9.3 percent of GDP and exceed Social Security's by 33 percent in 2077."[3]
  • When Baby Boomers Are in Retirement, Americans will be facing Big Tax Increases. Under current law, the Medicare hospitalization program is largely financed by payroll taxes, and the Medicare Supplemental Insurance (SMI) program, the part of Medicare that pays doctors, is largely financed by transfers from general revenues. In other words, by income taxes. With the increasing demands put on the program by the baby boomers, these annual transfers from the general revenues will grow rapidly. According to John Palmer and Thomas R. Saving, the Public Trustees, " …By the time the HI Trust fund is exhausted in 2026, Medicare already will be requiring $370 billion (in today's dollars) in annual general revenue transfers to HI and SMI combined, as opposed to about $75 billion in 2002. To obtain some idea of the resulting added pressures on the Federal Budget, consider that financing such an amount would require 24 percent of federal income tax revenues in 2026 if such revenues were to remain at their current share of GDP." [4] 

The Trustees report on Medicare ( the HI and SMI programs) is available on the Internet.



[1] Social Security and Medicare Boards of Trustees, Status of the Social Security and Medicare programs: A 2003 Summary of Annual Reports, p. 1 Hereafter cited as Summary.

[2] Ibid., p. 2.

[3] Ibid., p. 2.

[4] Ibid., p. 11.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies