The Medicare Trustees Report issued April 23 shows that although Medicare’s financial outlook remains troubling, the program’s outlook has improved slightly compared with last year’s estimate. The report notes that Medicare expenditures were $408 billion in 2006, or 3.1 percent of gross domestic product, and are projected to increase to over 11 percent of GDP in 75 years.
The report estimates that Medicare’s Hospital Insurance Trust Fund will be exhausted in 2019, one year later than estimated in last year’s report. This change results from slightly higher projected income and slightly lower projected expenditures than shown in last year’s report.
Nevertheless, costs in all three components of Medicare are expected to increase rapidly. Part B benefit payments have increased by an average of 10.7 percent annually, and Part A payments by an average of 6.0 percent annually, over the past five years. As a result, program costs financed by general revenues rather than by “dedicated revenues” are projected to exceed 45 percent in 2013, causing the trustees to issue a determination of “excess general revenue Medicare funding.”
This determination has now been made in two consecutive years, triggering a “Medicare funding warning,” which requires President Bush to propose legislation to respond to the issue within 15 days following the release of the FY09 budget (to be released in early February 2008). The law requires Congress to consider the president’s proposals on an expedited basis. The Medicare funding warning indicates that the level of federal general revenues required to finance Medicare is an important concern, but it does not signify that program benefits cannot be paid. Download the report.
