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Medicare Insolvency Creeps Closer

Hospital Fund Due Bankrupt in 2018

WebMD Health News

May 2, 2006 -- MedicareMedicare's trust fund will run out of money in 2018, two years earlier than previously expected, the program's trustees reported Monday.

The trust fund -- known as Part A -- finances hospital stays for 42 million Medicare beneficiaries. It's already operating in the red because it spends more on those services than it brings in. But the fund is now expected to be mostly depleted by 2018 unless Congress acts to lower spending or raise taxes.

The report also warns of rapidly rising costs for physician care in doctors' offices or outpatient hospital care, known as Medicare's Part B. Current Medicare law calls for 4% to 5% pay cuts for doctors over the next few years, but those cuts are expected to be negated by Congress. That could mean substantial hikes in the premiums beneficiaries pay for their care, experts warn.

Premiums are already slated to go up 11% for most beneficiaries next year. If Congress overrides the doctors' pay cuts, it will go up even more, John L. Palmer, a public trustee for Medicare and Social Security, tells WebMD.

"Part B is going to have to go up significantly next year," he says.

The report repeats warnings that both Medicare and Social Security are now financially unsustainable, mostly because of rapid growth of the nation's retired population. But rising health costs in general are adding additional pressures to Medicare and speeding up its financial troubles, the report states.

Medicare is expected to spend about $180 billion in taxpayer money, with billions more coming from premiums paid by beneficiaries themselves.

"The message of this report is urgency," Health and Human Services Secretary Michael O. Leavitt told reporters.

The White House has proposed cutting taxpayer spending on Medicare by 0.4% if Congress doesn't come up with proposals of its own to curb spending. In January, President George Bush called for a new, bipartisan commission to recommend fixes for Medicare and Social Security, though no members have yet been appointed.

Part D Costs Lower

The report also predicted lower-than-expected costs for Medicare's new prescription drug benefit, known as Part D. Bush administration officials say a slowdown in the growth of drug costs and competition among private insurance companies meant the program would cost less than they had previously planned.

"Clearly Part D is the bright spot," Leavitt says.

Palmer and another public trustee, Thomas R. Saving, said in a statement that Part D costs were lower than expected because fewer seniors than predicted have signed up for the program.

Just over 30 million of Medicare's 42 million beneficiaries are enrolled in Part D, which reaches its signup deadline two weeks from today. Bush administration officials maintain that they've reached their enrollment goals, though the same trustees' report last year predicted that more than 37 million seniors would sign up.

"It's not very good news for people who were hoping that the prescription drug benefit would be taken up by lots of people" who don't already have drug coverage, says Marilyn Moon, a former Medicare and Social Security trustee and a vice president and director of the Health Program at the American Institutes for Research.

Congress is unlikely to act on changes to Medicare this year but could begin to look at the issue after next November's elections, Moon says.

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