The 2004 Medicare and Social Security Trustees Reports

Studies | Health | Social Security

No. 266
Friday, June 04, 2004
by Andrew J. Rettenmaier & Thomas R. Saving, Ph.D.


What a Difference a Year Makes

Figure IV - Medicare and Social Security Additional Funding Requirements

"Medicare's unfunded obligations rose by 30 percent in one year."

What has changed from 2003 to 2004? In terms of the cost of future elderly entitlements, it is the passage of the Medicare Modernization Act. This new legislation represents the largest expansion of elderly entitlements since the passage of Medicare almost 40 years ago. As noted above, the new program's value expressed in 2004 dollars is $16.6 trillion. This represents a 30 percent increase in the funding required by the federal government to pay elderly entitlement benefits. The legislation also increased Medicare Part A unfunded obligations by increasing payments to private and rural health care providers, resulting in an even larger entitlement debt. Figure IV shows annual additional funding requirements as projected last year compared to the projection for 2004. As the figure shows, an additional 11 percent of income taxes will be required in 2020, and by 2030 an additional 16 percent will be necessary. By the end of the horizon the new legislation will require an additional 30 percent of federal income tax receipts. These dramatic increases in future costs show that adding new benefits without full consideration of their long run costs is a perilous course of action.


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