In their annual report, the Medicare Trustees announced that both the Medicare Hospital Trust Fund and the Supplementary Medical Insurance Trust Fund expenditures are growing faster than the rest of the economy. The Trustees report expenditures were $432 billion in 2007, or 3.2 percent of gross domestic product (GDP), and are projected to increase to nearly 11 percent of GDP in 75 years.

The Trustees report that Medicare's Hospital Insurance (HI) Trust Fund will become insolvent earlier in 2019 than reported last year. HI expenditure growth is estimated to average 7.4 percent each year over the next 10 years, a higher rate than either Gross Domestic Product (GDP) or Consumer Price Index (CPI) growth. This year the HI Trust Fund will spend more than its income, and from 2009 through 2017, about $342 billion will need to be transferred from the Federal treasury to cover beneficiaries' hospital insurance costs.

"We need to act quickly and effectively to address Medicare's fiscal health, including enacting the steps proposed in the President's budget, which would postpone the insolvency date of the Part A trust fund for ten years," said Health and Human Services Secretary Mike Leavitt. "Congress should also act immediately on the smart changes put forward by the Administration after last year's funding warning, which would allow the program to be modernized and transformed."
"Although Congress has never allowed a Medicare trust fund to become exhausted, under the current payment structure, a person who is 54 years old today cannot be assured that Medicare hospital insurance benefits will be there when he or she turns 65 and first becomes eligible for Medicare," said Centers for Medicare & Medicaid Services Acting Administrator Kerry Weems. "That's why we are already beginning to implement steps to make health care services under Medicare as effective and efficient as possible for beneficiaries."

The Supplementary Medical Insurance (SMI) Trust Fund is automatically in financial balance because beneficiary premiums and general revenue financing are reset each year to match the expected costs of the program for the following year. However, Part B benefit payments have increased by an average of 9.6 percent for each of the past five years and that continued growth remains a concern. The Trustees emphasize that actual Part B costs are very likely to exceed the current-law projections, primarily because the Trustees anticipate that Congress will continue to override an existing provision in the Medicare law that would require substantial reductions in Medicare payments to physicians over the next 10 years.

More Industry Headlines