Congressional Republicans and provider groups jumped on last week's prediction of a Medicare hospital trust fund bankruptcy within seven years as further proof that the system needs to be restructured.
According to the report of the trustees of the Federal Hospital Insurance Trust Fund, the fund will be exhausted by 2002 if Medicare outlays continue to grow at their current level of less thanMedicare
10% a year. If Medicare costs were to rise more quickly, the fund could become insolvent as early as 2001, the trustees said.
The trust fund covers only outlays for Medicare Part A, which go primarily for hospital inpatient services. Revenues for the fund are collected through a 2.9% payroll tax. Medicare Part B, which covers physician payments, is funded primarily through general revenues.
The trust fund "will be able to pay benefits for only about seven years and is severely out of financial balance in the long range," according to the trustee report.
While the report is gloomy, it actually represents an improved outlook from last year's analysis, which predicted the fund would go broke in 2001.
The report was fodder for groups arguing that the system cannot handle another round of severe Medicare spending reductions without being restructured to ensure its long-term financial health.
"Clearly Medicare is desperately in need of reform," said Thomas Scully, president of the Federation of American Health Systems. "The answer is not the traditional budget slashing; the whole program must be restructured."
Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means health subcommittee, said the report "confirms that the nation's health plan for seniors will soon be on life-support." Thomas and other GOP leaders are expected to propose as much as $135 billion in Medicare spending reductions over five years when they present their budget plan in early May.
In other moves affecting the trust fund, the House last week passed a tax cut plan that included a measure that would reduce the fund by more than $26 billion over five years. The provision reverses an increase in the amount of Social Security income subject to a tax that was earmarked in the 1993 budget for the Medicare trust fund.
The ranking Democrat on Thomas' committee, Rep. Fortney "Pete" Stark (D-Calif.), said the fund's precarious financial position was reason not to pass the tax measure.
"That is hardly a way to keep the trust fund solvent," Stark said.