Health Care Reform

Medicare Hospital Fund Will Be Insolvent by 2017, Two Years Earlier Than Expected

The trust fund that pays Medicare beneficiaries' hospital care will be insolvent by 2017, according to a Medicare Payment Advisory Commission (MedPAC) report. Since last year the program has been paying out more than it collects in taxes and interest, in part due to the worsening economy. This estimated date of insolvency is two years earlier than that predicted by the trustees last year.

Medicare would have to deposit $13.4 trillion -- $1 trillion higher than last year's estimate -- into an interestearning account today in order for the hospital fund to pay its scheduled benefits over the next 75 years, according to MedPAC. The program's total unfunded obligation, which includes doctor and prescription drug benefits, is $37.8 trillion. These calculations include a 21 percent payment cut for providers scheduled to take effect this year. However, Congress typically has eliminated the reduction.

"The financial outlook for the hospital insurance trust fund is significantly less favorable than projected in last year's annual report," the trustees said, adding, "Actual payroll tax income in 2008 and projected future amounts are significantly lower than previously projected, due to lower levels of average wages and fewer covered workers."

Since the recession began, 5.7 million workers have lost their jobs. The trustees estimated that in coming years, Medicare spending will rise faster than workers' earnings or the economy as a whole.

Exhaustion of the hospital fund does not mean it would run out of money, but that it would be unable to pay full reimbursements for hospital benefits by 2017. The fund likely would pay 81 cents per dollar claimed by hospitals.