U.S. Department of Health & Human Services
Improving the health, safety, and well-being of America	Frequent Questions Search

Font Size     Print     Download Reader

This is an archive page. The links are no longer being updated.

It is encouraging to see that the short-term financial condition of both Medicare and Social Security have improved since last year's Trustees reports. However, as Secretary O'Neill noted, these vital programs face significant long-term financial challenges that must be addressed as soon as possible.

The warning signs are clear: We must modernize and strengthen Medicare today to ensure that we are able to provide quality benefits to beneficiaries of tomorrow. We must equip Medicare for the future - and we must do this soon.

Medicare today is a cornerstone of our health care system. It provides coverage to 40 million Americans, the largest health insurer in the nation. All of us who are paying our taxes into this system are supporting it not only for today's beneficiaries, but in the full faith and expectation that this program will be there when we need it, and when our children need it - delivering health care at a price we can afford.

Today's report says we must make changes in order to fulfill that promise.

It might be tempting to look at only one number in this report - 2029, the current estimated date of insolvency for one of the Medicare trust funds. Indeed, we have gained four more years for the hospital fund, and that is good news.

But it's only one part of the story - and not the most significant part.

This finding is based on our recent years of robust economy, and on changes that have lowered spending in the hospital trust fund. But underneath this positive news lie deeper trends which we must not ignore: the aging of our population, and the reality of medical cost growth in both Medicare trust funds as our health care treatments and technologies improve. In particular, this single measure does not reflect the rapid growth of spending on Part B services, which are paid for by general revenues and by beneficiaries themselves through premiums and co-pays.

Let's look at the deeper realities. Today, there are nearly four workers paying Medicare payroll taxes for each single Medicare beneficiary. By about 2018, that ratio will be three-to-one. And by the year 2075, there will be only about two workers for each beneficiary. The math is simple and inexorable. Fewer workers for each beneficiary will have to support the high quality care we all want delivered.

Likewise, we must be realistic about the actual costs of our ever-improving health care treatments and technologies. We rightly expect those treatments to be available for Medicare beneficiaries. For example, we recognize today that Medicare is outdated in failing to provide prescription drug coverage. We need to add that coverage to bring Medicare coverage up-to-date.

But at the same time, we must acknowledge the real costs. In this year's report, we have done that. We have adopted more realistic assumptions about long-term medical inflation. These new assumptions were developed over the past year and recommended to us by the Medicare Technical Review Panel.

What we learn is sobering: In the hospital trust fund alone, the gap between Medicare revenues and Medicare spending is 63 percent higher than was estimated in last year's report.

And looking at the entire Medicare program, including Part A and Part B together, costs are projected to nearly quadruple over the next 75 years - growing from 2.2 percent of gross domestic product today, to 8.5 percent in 2075. At the same time, total trust fund revenues will grow much more slowly - from 2.4 percent of GDP today, to just 5.3 percent in 2075. So in 2075, Medicare expenditures will represent 8.5 percent of the nation's total gross domestic product, while Medicare revenues will be only 5.3 percent. The gap between Medicare revenue and Medicare spending would be the equivalent of more than 3 percent of gross domestic product.

If we don't make changes now, the reports make clear that we would face unacceptable choices later in lowering benefits or increasing taxes. And at the same time, costs would be rising steeply in Part B of Medicare, meaning higher general revenue tax spending � higher premiums to be paid by Medicare beneficiaries themselves, which would erode their monthly Social Security checks � and higher co-pays for these beneficiaries, as well.

In the next 20 years, the typical 65-year-old would see the portion of their Social Security check that is withheld to pay the monthly Part B premium almost double, from 6 percent to 11 percent of their Social Security check. Their total out-of-pocket expenses for Part B services (premiums plus copayments) would increase from 14 percent to 21 percent of their Social Security check.

Today's reports give us a more realistic picture of the future. They also send us a clear message. Change in Medicare is needed. This program, designed in the 1960s, was based on the model of health care coverage that worked then. Nearly two generations later, it is time to think creatively and productively about new approaches.

Unless we modernize and strengthen Medicare, the long-term prognosis for this program is not good. The near-term extension in Medicare hospital fund solvency is welcome - but we must not mistake it for a clean bill of health. Rather, it is a window of opportunity for us to modernize, improve and protect Medicare. We must take this opportunity now, because every year of delay will narrow our options and make the job more difficult.

We have the time and the means to modernize and improve Medicare. This report tells us that we must.

###