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Monday, October 15, 2012

Part 4: Draining the Medicare trust fund

Marc Steinberg

Deputy Director of Health Policy

What Governor Romney Doesn’t Want People Over 55 to Hear About His Medicare Plan
A five-part blog series about what’s really in Romney’s Medicare plan

Part 4: Draining the Medicare trust fund

So far, we’ve covered some very tangible ways in which the Romney-Ryan health care plan could hurt people with Medicare: higher out-of-pocket costs for prescription drugs and preventive services; higher premiums and co-insurance and vanishing Medicaid protections. Now, we’re moving to the bigger picture. Today’s topic: what happens to the Medicare trust fund under the Romney-Ryan Medicare plan.

 First some background: What is the Medicare trust fund, anyway? All of us who’ve earned a paycheck know that 1.45 percent of our pay goes to Medicare payroll taxes. Those taxes are deposited in the Medicare trust fund (technically, the Hospital Insurance trust fund). The money in the fund is used to cover Medicare’s portion of Part A benefits—that’s mostly hospital and other inpatient care. Beneficiaries cover the rest through deductibles and co-insurance.   

The trust fund is not a perfect measure of Medicare’s health. A lot of Medicare—including doctors’ visits and prescription drugs—is paid for from other sources, such as income taxes and individuals’ premiums. And throughout its history, the trust fund has, from time to time, come close to running short. It’s been projected to go negative at various times in the 1970s, 1980s, 1990s, and 2000s, and Congress has always made changes that prevent a crisis. But all things being equal, it’s comforting to have a longer horizon for the trust fund rather than shorter. That way, we have some time to make improvements to Medicare gradually, which lets us learn what works and avoid radical changes that disrupt care. Right now, the trust fund is fully funded until 2024,  which gives us time to develop new ways to make our health care system better.

Governor Romney has said repeatedly that he would undo all the Medicare savings and new revenues that were part of the Affordable Care Act. He hasn’t said how he’d pay for those changes. But if Medicare spends more and takes in less, it can only mean bad news for the Medicare trust fund. In fact, the Romney proposal would result in a Medicare trust fund that runs short in 2016. That’s just four years from now, before the end of the next presidential term.

Now, even if the trust fund did not have enough reserves to cover all the benefits, Medicare would not necessarily shut down. There would still be money flowing in to cover most of the trust fund’s obligations, and Congress and the new President would have to figure out other ways to make the program work. But the reality is that those other ways would likely involve some dramatic cuts to benefits or increases in cost-sharing that would take effect immediately—not 10 years from now. When Governor Romney and Congressman Ryan talk about Medicare, they don’t like to talk about these inconvenient details. But these are the details that really matter. 


Next: An unstable Medicare and losing your doctor