Going Out of Business?

Summary
A new health care ad from a conservative group claims that "Medicare will be bankrupt in eight years." That gives a false impression. The program does have huge financial problems, but there's no reason to think it's going out of business as the word "bankrupt" implies. And the issue isn't new:

A government report the ad refers to says the trust fund for one part of Medicare – hospital insurance – won't have enough money to pay all benefits in 2017. Medicare's physician and drug benefits will "remain adequately financed," says the report.

Government projections have found that the hospital insurance trust fund would face a shortfall "almost from its inception," according to the Congressional Research Service. But in many cases politicians have found ways to extend it. In 1970, for instance, the trust fund was expected to be insolvent in 1972.

The ad also claims that "some want to pay for health care reform with $500 billion dollars in Medicare spending cuts." Actually, the House health care bill, to which this refers, proposes a net cut in spending of $219 billion over 10 years.

Analysis
The conservative group Americans for Prosperity has released a new 60-second ad through its Patients First project. The ad, which features a family doctor, Dr. Amy Siems, talking to viewers, recycles a few misleading talking points against health care legislation in Congress, but includes a new claim that is quite startling. Dr. Siems says that "Medicare will be bankrupt in eight years."

American's For Prosperity Ad: "Dr. Siems"
Dr. Amy Siems: I've been a family doctor for 18 years and I'm concerned that some in Washington are making plans that could lead to government control of many Americans' health care. I think that's dangerous. Bureaucrats should never be able to deny or delay the care that doctors provide. And if the government starts to take over health care, your choices could be reduced. Health care could be rationed. Quality would suffer. Washington already controls Medicare and Medicare will be bankrupt in eight years. Despite this looming bankruptcy, some want to pay for health care reform with $500 billion dollars in Medicare spending cuts. And look at Canada and England where government controls health care. Patients wait up to a year for vital surgeries. Delays that could be deadly. So instead of forcing Americans into the kind of health care system that has already failed, Washington needs to fix Medicare first.

Narrator: Learn more at JoinPatientsfirst.com

Siems: Government should never come between your family and your doctor.

Bankrupt? Within a Decade?
Yikes. Quite a scary claim to make about a program that encompasses 16 percent of the federal budget and benefits 45 million Americans. But the word "bankrupt" is far too strong to accurately describe Medicare's problems.

The AFP/Patients First ad points to a government report as the source of its claim, and that report does say Medicare's "[p]rojected long run program costs are not sustainable," and that its problems are even more severe than those of Social Security. The report says further that the trust fund for one part of Medicare – hospital insurance – is projected to be insolvent in 2017, and calls that "an urgent concern." But that's not the same thing as being "bankrupt," and it only applies to one of four distinct parts of the overall Medicare program. As the Social Security Administration explains:

• Hospital insurance (Part A) pays for inpatient hospital services, skilled nursing facility care and hospice care.
• Medical insurance (Part B) covers physician services and medical supplies not paid for by Part A.
• Medicare Advantage (Part C) is an option to receive benefits through a private insurance company.
• Part D is Medicare's prescription drug coverage.

The ad refers to the Social Security and Medicare Boards of Trustees 2009 Annual Report, which indeed makes some dire predictions for Medicare Part A, the segment that's in danger of running out of money. Part A relies primarily on payroll taxes and its trust fund, or reserves, to pay for benefits. Parts B and D, meanwhile, funded by general revenues and monthly premiums, "are both projected to remain adequately financed into the indefinite future," according to the report. (The trust fund for those segments, though, "will continue to require general revenue financing and charges on beneficiaries that grow substantially faster than the economy and beneficiary incomes over time.")

Funds for Part A will only be able to pay 81 percent of the projected spending in 2017, and less each year after that, according to the trustees' estimates:

Trustees Report: The projected date of HI [Hospital Insurance]Trust Fund exhaustion is 2017, two years earlier than in last year's report, when dedicated revenues would be sufficient to pay 81 percent of HI costs. Projected HI dedicated revenues fall short of outlays by rapidly increasing margins in all future years.

The report goes on to say that the HI trust fund "could be brought into actuarial balance over the next 75 years" by either significantly increasing the payroll tax which funds it, cutting spending by half, or a combination of those measures. "Larger changes would be required to make the program solvent beyond the 75-year horizon," the report says.

But warnings of depleting the HI trust fund aren't new. In a 2008 report, the Congressional Research Service wrote that "almost from its inception, the HI trust fund has faced a projected shortfall. The insolvency date has been postponed a number of times, primarily due to legislative changes which had the effect of restraining growth in program spending." Indeed, a 1983 report from the Senate's Special Committee on Aging forecasted that:

Senate Special Committee on Aging, 1983 report: Balances in the HI trust fund are projected to be exhausted during 1987. Though the HI balance was a substantial $18.7 billion at the end of 1981, borrowing by the old-age and survivors insurance trust fund (OASI) reduced the HI balance to $8.3 billion at the end of 1982. … This already low balance is projected to decline slowly through 1986 and rapidly in ensuing years, as outlays exceed income by a widening margin.

And that is hardly the only year in which a government report projected shortfalls just around the corner, as this table, makes clear.