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Trustees say Medicare could go broke by 2019 without changes

Wednesday, March 24, 2004

WASHINGTON -- Medicare will have to begin dipping into its reserves this year and without changes will go broke by 2019 -- seven years earlier than expected -- because of rising health costs, trustees warned Tuesday.

The deteriorating financial picture for the program, which will start a new seniors drug benefit in 2006, provided fuel for an already-hot political debate in which both parties are courting graying baby boomers in this year's elections for control of the White House and Congress.

Democrat John Kerry said the report showed President Bush had squandered on tax cuts money that could rescue Medicare. The White House sought to blame the program's problems on rising health costs and not the drug benefit Bush signed in December.

Medicare is the government's main health-care program for older and disabled Americans.

The trustees' annual projections said Social Security's finances remained the same and the program's projected insolvency date remained 2042.

The new Medicare law will swell program costs by more than $500 billion over 10 years and more than $8 trillion over 75 years, according to the report.

As they did last year, the trustees said that projected lower tax receipts devoted to the program and higher expenditures for hospital care also contributed to the growing financial problem.

The drain on the trust fund and projected costs for other aspects of Medicare, including doctor visits and prescription drugs "raise serious doubt about the sustainability of Medicare under current financing arrangements," the trustees said.

Without offering specifics, the trustees -- four of six are senior administration officials -- said Congress would have to act soon to fix Medicare's finances.

One trustee, Health and Human Services Secretary Tommy Thompson, however, said preventive-care benefits in Medicare and coordinated care for chronic illnesses that are part of the new law would help to contain costs.

The report quickly became presidential campaign fodder.

Democrats said the lack of new jobs in the economy is responsible for lower receipts from wage taxes. Kerry blamed "George Bush's irresponsible tax breaks for the wealthy and his giveaway to the prescription drug companies" and said the system would be broke by the time people 50 or younger reach retirement.

"After inheriting a strong economy and record surpluses, this president had the chance to stay the course of fiscal responsibility and shore up both the Social Security and Medicare trust funds. Instead, he made a mockery of fiscal responsibility," Kerry said.

The Bush-Cheney campaign, meanwhile, criticized Kerry who -- like many Democrats -- voted against the prescription drug benefit. Kerry, the campaign said, "would bankrupt Medicare while denying seniors access to cost- and life-saving prescription drugs and preventive care."

Republicans pressed for the overhaul of Medicare last year to give private insurers a much larger role in the program as a way, Bush and others said, to control long-term costs.

But the government's own projections are that private managed care plans will cost taxpayers more than traditional Medicare for the foreseeable future.

Government officials have been predicting for years that the retirement insurance and health care funds for the elderly -- both financed through payroll taxes -- will be pushed toward insolvency as more post-World War II baby boomers reach 65.

By 2078, the trustees said, the gap between revenues and spending would be $31.4 trillion for the two programs. Looking even further into the future, the trustees said the gap would be $72 trillion.

The latter estimate is on a so-called "infinite horizon" that some analysts consider useful because it takes into account "not only people who are participating today, but all future generations who will pay taxes and draw benefits," said a report co-authored last fall by Thomas Saving, a trustee who teaches economics at Texas A&M University.

Democratic lawmakers attacked its use as a way to make it appear that, in particular, Social Security is in crisis. "This report shows the Social Security system faces no imminent threat to its financial health," Rep. Robert Matsui, D-Calif., said.

Administration officials said the Social Security shortfall of $3.7 trillion over 75 years could be erased by increasing the combined Social Security tax rate paid by employers and employees from 12.4 percent to 14.3 percent, or by cutting benefits by 13 percent. The administration is not advocating either approach, instead calling for giving Americans the ability to invest part of their Social Security contributions in personal accounts.

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On the Net:

Social Security Administration: http://www.ssa.gov

Medicare: http://www.medicare.gov


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