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On Life Support: Medicare’s Insolvency Will Be Obama’s Legacy

John on May 13, 2011 at 12:45 pm

The trustees of Medicare and Social Security issued new reports today. The news is grim, though this should not be a surprise to anyone who has been paying attention. Social Security is already running at a permanent deficit though the mythical trust fund will last on paper until 2036.

Medicare is in even worse shape. Just last August the trustees estimated that Medicare was solvent until 2029. Nine months later they’ve cut another five years from the estimate:

Friday’s release of the annual reports of the Social Security and Medicare trustees brought the news that the Medicare Hospital fund will run out in 2024, five years sooner than projected by the trustees just last August.

That means we have 13 years as of now. However, those numbers are deceptive because they assume that Congress will allow the “doc fix” to drastically lower Medicare reimbursement rates starting next year:

The trustees’ projections must be based on current law. But one big part of current law, reductions in Medicare payment rates for doctors, have regularly been overridden by Congress, simply because the cuts are too politically and economically painful.

Thus, the “almost 30 percent reduction in Medicare payment rates for physician services is assumed to be implemented in 2012 as required under current law, despite the virtual certainty that Congress will override this reduction.”

Also doctors and hospitals may not be able meet the productivity goals in last year’s health care law.

In view of all that, the trustees warned “it is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report.”

In other words Medicare finances are likely in worse shape than the top-line numbers suggest.

If you simply assume that Medicare payouts will be 30% higher than anticipated, that 13 year window of solvency drops to 10 years. If you further assume that goals in Obamacare will not be met (or that we will not be at 5.5% unemployment by 2018 as the report anticipates) Medicare could very well be insolvent much sooner, say 5-7 years. Indeed, if we assume for sake of argument that Obama wins reelection in 2012, it’s possible Medicare will be permanently insolvent before the end of his second term or very shortly thereafter.

The President and his party have cynically chosen to demagogue this issue for political gain rather than deal with it. Perhaps they should reconsider that choice. If Medicare goes bankrupt on Obama’s watch or shortly thereafter, it will be the only legacy of his presidency that anyone remembers.

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