NCPA - National Center for Policy Analysis

THE MEDICARE FISCAL TIME-BOMB

July 16, 2007

The present value of the unfunded obligations for Medicare over the next 75 years totals $33.9 trillion.  Over the infinite horizon, the unfunded obligation totals $74.3 trillion, says the Washington Times.

  • These totals represent the difference between projected benefits, on the one hand, and the sum of the 2.9 percent payroll tax for Medicare Part A (hospital insurance) and the premium payments by beneficiaries in Medicare Part B (outpatient services) and Part D (prescription drugs), on the other.
  • In order to meet current-law Medicare commitments, $33.9 trillion (over 75 years) and $74.3 trillion (over the infinite horizon) represent the present values of the financing that must come from one of four sources (or a combination) -- general tax revenues, increased borrowings, lower government spending elsewhere and/or Medicare reforms that reduce the unfunded obligations.

Worth noting is that these are the intermediate projections of Medicare's actuaries and trustees.  Based on which statistical analysis do they justify such an assumption? According to Medicare public trustees Thomas Saving and John Palmer:

  • It seems reasonable that per capita expenditures on health care cannot grow faster than per capita gross domestic product (GDP) indefinitely without all other forms of consumption trending to zero.
  • Further, there is, as yet, no clear evidence of when, or even how, this trend might abate; but if it does not do so soon, then the bleak fiscal picture (present-value unfunded obligations of $33.9 trillion over 75 years and $74.3 trillion over the infinite horizon) portrayed in these reports will be bleaker still.

Source: Editorial, "The Medicare fiscal time-bomb," Washington Times, July 16, 2007.

 

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