Originally created 03/02/05

Grave Medicare ills await attention



WASHINGTON - A looming Medicare shortage is seven times the size of the one that Social Security faces and nearly four times the entire federal debt. It is not being addressed by President Bush and Congress, and, to some, that is just as well.

Social Security, which Bush has hoisted atop his domestic agenda, is $3.7 trillion short of what it will need for benefits over the next 75 years, under the latest federal projections. Medicare, the health care program for the elderly, must find an estimated $27.8 trillion.

By 2018, Social Security is on track to start paying more annually to recipients than it collects in payroll taxes - an ominous tipping point that Medicare reached last year.

While Social Security is expected to exhaust its reserves in 2042, Medicare should deplete the trust fund financing its hospital benefits in 2019, the latest forecasts show.

Medicare's problems are full of political and technical complexities that are thornier than those confronting Social Security.

That makes it a daunting mix the White House would rather tackle later.

"Once we modernize and save Social Security for a young generation of Americans, then it will be time to deal with the unfunded liabilities in Medicare," Bush told reporters last month.

Social Security supports 47 million people, most of whom are elderly and disabled. It is the largest federal program at $517 billion this year.

Medicare, costing $325 billion, provides health insurance to 42 million old and disabled people.

Though Medicare is smaller today, the government and public trustees who oversee both programs projected last year that Medicare's costs would overtake Social Security's by 2024 and nearly double them by 2078.

Helping make Social Security the current priority for the president and fellow Republicans is its relatively clear problems and potential solutions. It faces a crunch from the retirement of baby boomers starting later this decade. It either will need more money from the 12.4 percent payroll tax that workers and their employers split, or cuts in benefits, or extra federal borrowing.

Medicare faces the same demographic tidal wave - plus the added costs and complications of health care. Progress in medicine and medical technology are helping increase health care costs by about 7 percent a year - more than double general inflation.

As a result, few people think Medicare expenses can be definitively contained without stemming the growth of overall medical costs - an intricate task on which there is little consensus. It also would involve taking on the potent lobbies of the nation's doctors and other health care providers.

"I don't think anybody has a good idea how to resolve" Medicare's woes, said Senate Budget Committee Chairman Judd Gregg, R-N.H. He acknowledges that he lacks the votes to overhaul Medicare in the budget that Congress will write this year. "Let's solve the one we can solve."

The Medicare problem is "several multiples more difficult than is Social Security," Federal Reserve Chairman Alan Greenspan told a House committee last month. But he advised against tackling Medicare until advances are made in medical information technology, which is expected to save money by increasing the health sector's efficiency.

"If we do it now or even next year, I'm fearful we would be restructuring an obsolete model and have to come back and undo it," Greenspan said.

Adding to the appeal of tackling Social Security first is a sense by many Republicans of a potential long-term political triumph.

Bush is struggling to win support in Congress for his plan to add personal savings accounts for the retirement program. Even so, many Republicans say enactment of a plan buttressing Social Security would win them gratitude from younger voters who think the current system will go bankrupt and is too financially stodgy.

A similar political gain from reshaping Medicare seems more elusive. Congress attached prescription drug coverage to the program in 2003, adding $724 billion to Medicare's costs over the next decade, according to White House estimates. An immediate effort to cull savings from Medicare could be seen as an admission of error by Bush and the GOP-led Congress.

"It would be embarrassing to suddenly say this is a program in dire need of restricting," said Robert Reischauer, president of the liberal-leaning Urban Institute and former head of the Congressional Budget Office.

Sen. Kent Conrad of North Dakota, the top Democrat on the Senate Budget Committee, says Bush's focus on Social Security first could be "a diversion from how big the overall problem" of budget deficits and costly programs such as Medicare really is.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, says Democrats' talk about Medicare "looks a lot like a ploy to do nothing." He added, "We shouldn't let Medicare prevent us from making real progress on Social Security."

A look at the financial problems of Medicare and Social Security. Figures are from the March 2004 reports by the government and public trustees who oversee both programs, unless otherwise noted.

-Year costs first exceed payroll taxes collected: Medicare 2004, Social Security 2018.

-Year trust fund assets exhausted: Medicare's hospitalization trust fund 2019, Social Security 2042.

NOTE: Social Security is primarily financed by a 12.4 percent payroll tax split between workers and their employers. Assets accumulate in a Social Security trust fund. Medicare's hospital benefits are mostly paid by a 2.9 percent payroll tax, also split between workers and employers. Assets are placed in a Medicare trust fund. Coverage for doctors, prescription drugs and other benefits comes mostly from general federal revenues, also from monthly premiums paid by beneficiaries.

-Projected 75-year shortfalls in trust funds (a common measure of each program's long-term solvency): Medicare hospitalization $8.2 trillion, Social Security $3.7 trillion.

-Medicare's overall 75-year needs, including coverage financed by general funds and premiums: $27.8 trillion. This is an estimate by the Government Accountability Office, Congress' auditing arm.

-Percent of scheduled benefits both programs could afford to pay in 2078 if programs are unchanged: Medicare hospitalization 26 percent, Social Security 68 percent.

-Percent of U.S. economy Medicare is projected to consume: 2.7 percent in 2004, 3.4 percent in 2006 when drug benefits begin, 7 percent in 2030, 13.8 percent in 2078.

-Percent of U.S. economy Social Security is projected to consume: 4.3 percent in 2004, 4.3 percent in 2006, 6.3 percent in 2030, 6.6 percent in 2078.

-Changes required to immediately resolve Medicare's long-range solvency problem: Increase 2.9 percent payroll tax to 6.02 percent or cut benefits by 48 percent.

-Changes required to immediately resolve Social Security's long-range solvency problem: Increase 12.4 percent payroll tax to 14.29 percent or cut benefits by 12.6 percent.

On the Net:

Centers for Medicare and Medicaid Services: http://www.cms.hhs.gov/default.asp?

Medicare: http://www.medicare.gov/