Medicare Trustees Report To Force Reform Debate

Cash Flow Crunch to Compel Rethinking the Program, Says NCPA 

(WASHINGTON, D.C.) April 23, 2007 – Deteriorating Medicare finances will force the federal government to consider reforming the nation's health care program for seniors, based on the just released annual report of the Social Security and Medicare Trustees.  

According to the report, Medicare is promising more in benefits than the program has the ability to fund without an influx of outside revenues.  The estimated unfunded liability of Medicare is $34.2 trillion over the next 75 years, and $74.6 trillion looking indefinitely into the future (see attached charts).  The Medicare prescription drug program (Medicare Part D) alone has an estimated unfunded liability of $8.4 trillion over the next 75 years – nearly double that of Social Security.

Today's report triggers a provision of the 2003 Medicare Modernization Act that requires the President to submit legislation that Congress must consider in an expedited manner. 

"Medicare and Social Security need to be reformed," said Public Trustee Thomas R. Saving, director of the Texas A&M University Private Enterprise Research Center and senior fellow of the NCPA.  

According to the report, the deficits in Social Security and Medicare, will cause a steadily increasing drain on other federal revenues.  Until recently, the two programs took in more revenue than they paid out in benefits.  However:

  • By 2010, Social Security and Medicare will require almost 1 in 12 federal income tax dollars. 
  • By 2020, spending on these two programs will require more than 1 in 4
  • By 2030, about the midpoint of the baby boomer retirement years, Social Security and Medicare spending will require almost 1 in every 2 income tax dollars. 
  • By 2050, they will require nearly 3 in every 4
  • Eventually, the deficits in these two programs will absorb the entire federal budget.

"This means that if we are to keep our promises to seniors, now and into the future, the federal government will have to stop doing just about everything else," said Saving.  "Alternatively, we will have to either raise taxes or significantly cut benefits. Either option will be very painful."