Is there really a Medicare Trust Fund?

Is there a Medicare Trust Fund?

Yes, in the same sense as there is a Social Security Trust Fund. That is, the Medicare Trust buys special Treasury bonds with the taxes it receives to pay for Medicare. The Treasury then spends the money received from selling bonds on other government expenses as part of general revenue.

That works fine as long as the incoming revenue to Medicare, primarily payroll taxes paid by workers and their employer and the income taxes paid on Social Security benefits) exceeds the expenses. but when that is no longer the case (like now), the Trust must redeem the bonds to pay claims and the government must borrow more money to provide the proceeds on the bonds (plus the interest it pays on the bonds). Part B of Medicare is not limited by the Trust balance because general revenue of the federal government automatically pays any expenses not covered by the Part B premiums thereby adding to the deficit on a regular basis.

Here is what the Medicare Trustees report says:

The draw down of Social Security and HI trust fund reserves and the general revenue transfers into SMI [supplemental medical insurance, Part B] will result in mounting pressure on the Federal budget. In fact, pressure is already evident. For the sixth consecutive year, the Social Security Act requires that the Trustees issue a “Medicare funding warning” because projected non-dedicated sources of revenues—primarily general revenues—are expected to continue to account for more than 45 percent of Medicare’s outlays, a threshold breached for the first time in fiscal year 2010.

TIP: When you hear that socialist senator from Vermont, Bernie Sanders stand up and say Social Security is off the table in any budget discussions because it has nothing to do with the budget or deficit, tell him it’s time to retire because he has no idea what he is talking about. When you borrow money and that loan comes due and you don’t have the money because you spent it and must borrow more money to pay the money you owe to someone else, in this case the Social Security and Medicare trust funds, then it seems to me that your budget and your deficit go up which is exactly what is happening today.

The Medicare Trustees in their 2012 also said this (HI is hospital insurance Part A):

The estimated exhaustion date for the HI trust fund remains at 2024, the same year shown in last year’s report. As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years. HI taxable earnings in 2011 were about equal to the last year’s estimate. However, the projected rate of growth in these earnings is lower in 2012 through 2014 but then exceeds last year’s growth assumptions after 2014. HI expenditures in 2011 were lower than the previous estimate, but the projected level grows more rapidly than shown in last year’s report because of changes in HI provider assumptions and the projected faster growth in earnings after 2014. Most of this faster growth is offset by the expected 2-percent reduction in HI outlays under the Budget Control Act of 2011 for fiscal years 2013 through 2021.

HI expenditures have exceeded income annually since 2008, and projected amounts continue doing so through the short-range period until the fund becomes exhausted in 2024. In 2011, $27.7 billion in trust fund assets were redeemed to cover the shortfall of income relative to expenditures, and $12.0 billion in interest payments were made from the general fund of the Treasury to the HI trust fund. The assets were $244.2 billion at the beginning of 2012, representing about 90 percent of expenditures during the year, which is below the Trustees’ minimum recommended level of 100 percent. The HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003.

The SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to match expected costs.

Part B and Part D costs, however, have been increasing rapidly, having averaged 5.9 percent and 7.2 percent annual growth over the last 5 years, respectively. Under current law, the Trustees project an average annual Part B growth rate of 4.9 percent for the next 5 years. This rate is unrealistically constrained due to a physician fee reduction of almost 31 percent that is called for in 2013 under current law. If lawmakers override this reduction, as they have for 2003 through 2012, the Part B growth rate would instead average 7.6 percent. For Part D, the estimated average annual increase in expenditures is 8.8 percent through 2021. The projected average annual rate of growth for the U.S. economy is 5.0 percent during this period, significantly slower than for Part D and the probable growth rate for Part B.

[Find an economist anywhere who thinks the annual growth rate of the U.S. economy will average 5% over the next eight years]

The difference between Medicare’s total outlays and its “dedicated financing sources” reaches an estimated 45 percent of outlays in fiscal year 2012, the first year of the projection. Based on this result, Federal law requires the Trustees to issue a determination of projected “excess general revenue Medicare funding” in this report. This is the seventh consecutive such finding, and it again triggers a statutory “Medicare funding warning” that Federal general revenues are becoming a substantial share of total financing for Medicare. The law directs the President to submit to Congress proposed legislation to respond to the warning within 15 days after the date of the Budget submission for the succeeding year.

What I find most amazing about all this is that none of it comes out in the political discussion. Instead we hear babble about the $716 million taken from Medicare, that Medicare was saved by Obamacare and we hear nothing about the assumptions used in all the calculations, like physician fees will be cut by 30% in only two months, or that the economy will grow at unrealistic rates or that every penny the government gives to the Trust is borrowed money adding to the deficit. All this double talk and yet the Trustees of Medicare and Social Security are the very political appointees who say all the misleading, dumb things including; Timothy F. Geithner, Secretary of the Treasury, and Managing Trustee of the Trust Funds, Hilda L. Solis, Secretary of Labor, and Trustee, Kathleen Sebelius, Secretary of Health and Human Services, and Trustee and Michael J. Astrue, Commissioner of Social Security, and Trustee.