The Long History of Predicting Medicare Will Run out of Money
Thursday, May 24, 2012
Warnings of Medicare running out of money have been around almost as long as the program itself.
Founded in 1965, the first projection that Medicare would become insolvent was issued only five years later by its board of trustees. Then, the worry was the fund would go dry by 1972. This development was averted, as were subsequent insolvencies through a variety of methods, such as raising the payroll tax rate and reducing expenditures, according to Patricia Davis of the Congressional Research Service.
Warnings were issued again in the mid-1970s that projected Medicare would go belly up sometime either in the late 1980s or during the 1990s. Once those deadlines came and went without disaster, the trustees projected the program would reach insolvency by 2001. Again, the worst was avoided as a result of actions by policymakers in Washington, DC.
The most recent projection is that Medicare will be unable to continue providing health care coverage by 2024.
Medicare’s Part A, Hospital Insurance, is primarily financed by payroll taxes levied on current workers and their employers, which are put into a trust fund. Part B, Supplementary Medical Insurance, is financed by a combination of premiums and general government spending that go into a separate trust fund. Part C, Medicare Advantage, is a supplemental premium program paid for by funds from both trusts and payments by beneficiaries. Part D, the outpatient drug benefits plan that went into effect in 2006, is funded through general revenues, state contributions, and beneficiary premiums.
-Noel Brinkerhoff, David Wallechinsky
To Learn More:
Medicare: History of Insolvency Projections (by Patricia A. Davis, Congressional Research Service) (pdf)
How is Medicare Funded? (Centers for Medicare and Medicaid Services) (pdf)
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