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Medicare is Not Cheap For Either Seniors Or The Government: Part 2; The Government


Stanley Feld M.D.,FACP,MACE

Medicare is partially funded through payroll taxes of the workforce for the benefit of seniors. The unfunded liability of the government for seniors is enormous. It gets bigger each year. As baby boomers reach Medicare age the government unfunded liability is going to escalate more rapidly.

President Obama and the Democratic controlled congress are ignoring the Medicare trustee annual report of Medicare’s unfunded liabilities. They keep promising us the public option will provide the same insurance the congress receives under Medicare Part C. The only way to fix the unfunded liabilities is to decrease services or increase taxes or both. These reports are public information.

Medicare is funded by a combination of dedicated revenues (payroll taxes, beneficiary premiums, and state payments) and general revenues.

“Medicare’s Hospital Insurance (HI) trust fund, (Medicare Part A) financed by payroll taxes, is currently running a deficit and is projected to be exhausted by 2019” according to the 2005 Medicare trustee report.

“Conversely, the Supplementary Medical Insurance (SMI) trust funds’( Medicare Part B and Part D ) which cover outpatient services and prescription drugs, never face a deficit nor become exhausted, because annual adjustments are made each year—mainly drawing more from general revenues—to match expected costs.”

Nevertheless, with projected increases in demands on the Medicare program by retiring baby boomers and rising health costs, growth in program expenditures, which are already heavily reliant on general revenues, will soon require additional taxpayer funding.

The projection in unfunded liability in the next 75 years increased from $12.7 trillion in 2005 Medicare Trustee report to $34.2 trillion in 2007. The 2008 report estimated the unfunded liabilities will increase to $100 trillion in 75 years. These numbers are estimates for seniors only. If President Obama extends Americans covered under the public option the unfunded liability will be higher. The only way to cover these costs is to increase taxes, decrease coverage or both.

In 2006, total Medicare expenditures were $408 billion, or approximately 3.1 percent of GDP. But as a share of GDP, Medicare expenditures are projected to double to 6.5 percent by 2030 and nearly quadruple to 11.3 percent by 2081.

This was a 2007 estimate. In 2008 the estimate doubled. President Obama’s healthcare reform plan will knock the ball out of the park. $1 or $2 trillion dollars is a lot of money. $100 trillion dollars is unimaginable.

“The Medicare Trustees report shows that Medicare poses the single greatest challenge to taxpayers of all government programs.”


In 2005 Senator Judd Gregg R-NH, President Obama’s choice for Secretary of Commerce expressed the need for fiscal responsibility while the U.S. Comptroller General could not express the urgency in more graphic terms.

[W]e as a Congress has an obligation to try to fix [those entitlement programs] today so that they don’t end up bank­rupting our children and our children’s children tomorrow.

Senator Judd Gregg (R–NH)[1]

There is no way we are going to deliver all the Medicare promises that have been made. No way.

David M. Walker, U.S. Comptroller General[2]

Now we are hearing from President Obama that we cannot afford not to spend the money. The common invective about the Democratic Party is they are the tax and spend party. President Obama is turning the invective around. He plans to spend and then tax.

The administration is not testing reality. Government estimates are usually notoriously underestimated. In recent weeks the CBO estimated a $1 trillion dollar increase in the next ten years if the government adopts Ted Kennedy’s plan. $1trillion dollars is a big number. I believe the Congressional Budget Office is being kind to Ted Kennedy’s bill and the estimate of costs of the public option.

The Centers for Medicare and Medicaid Services (CMS), the agency that runs the Medicare program, gen­erated its own estimate in 2003 and has continued to do so every year since the bill’s enactment. Though not made public until 2004, the CMS’s 2003 estimate was $534 billion dollars in unfunded liabilities for the period 2004 to 2013. In CMS’s February 2005 estimate, the 10-year price tag of the drug provision is $724 billion dollars for the period 2006 to 2015.

Americans are being numbed by the numbers. A trillion here, several trillion dollars there and everything will be alright. Today the Medicare estimated unfunded liability will increase by $2 trillion in just one year without President Obama’s healthcare reform.

If the government really wanted to reform the healthcare system, be able to afford universal care and increase the quality of care to increase the health of the nation he would focus on the real problems in the healthcare system as I have outlined them.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

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