Medicare is unsustainable and its financial outlook is much bleaker, says U.S. Comptroller General David M. Walker, head of the General Accounting Office. In 2016, the same year Social Security outlays are expected to exceed tax revenues, Medicare hospital outlays will exceed payroll tax revenues.

[Medicare's Hospital Insurance (HI), or Part A, is financed through payroll taxes, and Supplementary Medical Insurance (SMI), or Part B, covering outpatient services, is 75 percent financed by general revenues and 25 percent by beneficiary premiums.]

The Medicare Trustees now estimate spending in the long-term will grow 1 percentage point above per-capita gross domestic product (GDP) each year -- about 1 percentage point faster than previous projections.

• Medicare spending is running 7.5 percent higher than last year, for the first 8 months of fiscal year 2001.

• Total Medicare spending will double to 5 percent of GDP by 2035 -- and grow to 8 percent of GDP in 2075.

• In just one year, the net present value of the shortfall in HI revenues over the next 75 years increased 75 percent, from $2.6 trillion to $4.6 trillion.

By 2030, warns Walker, Social Security, Medicare, and Medicaid will consume more than three-quarters of total federal revenue -- without outpatient prescription drug coverage.

• Today, restoring solvency to the HI trust fund would require benefit cuts of 37 percent or tax increases of 60 percent.

• Postponing action until 2029 would require more than doubling the payroll tax or cutting benefits by more than half.

• Overall, Medicare and the federal portion of Medicaid together will grow to 14.5 percent of GDP in 2075 -- not including the state and local shares of Medicaid expenditures.

Absent reform, says Walker, "sometime during the 2040s government would do nothing but mail checks to the elderly and their health care providers."

Source: David M. Walker (Comptroller General of the United States), "MEDICARE: New Spending Estimates Underscore Need for Reform," Testimony Before the Committee on the Budget, House of Representatives, July 25, 2001, GAO-01-1010T, General Accounting Office, Washington, D.C.

For text
http://www.gao.gov/new.items/d011010t.pdf