Medicare Monster Mash

Ronald Bailey from the February 2010 issue

“The scene is Capitol Hill. It’s the year 2035. Thousands of elderly protesters assemble outside the Capitol building. Inside, the House Ways and Means Committee meets to enact huge cuts in both Medicare and the national health insurance program.”

That is the opening of “The Medicare Monster,” a reason article from January 1993; authors Steven Hayward and Erik Peterson highlighted predictions of Medicare’s impending fiscal insolvency to warn against the push for government-run health care. Substitute 2017 for 2035, and you could write the scene today.

Hayward and Peterson’s cautionary tale pointed out that Medicare costs had been dramatically underestimated from the inception of the program in 1966. Medicare cost $3 billion in 1966.  A “conservative” estimate by the House Ways and Means Committee in 1966 projected that Medicare would cost $12 billion after inflation by 1990. The actual 1990 cost was nearly nine times more: $107 billion. Today Medicare costs $408 billion, consuming about 13 percent of the total federal budget.

Since 1993 projections about Medicare’s eventual date of bankruptcy have oscillated considerably. In 1997 the Medicare Trustees projected that its hospital fund would be depleted by the middle of 2000. Fiscal collapse was avoided when the Balanced Budget Act of 1997 imposed what amounted to price controls on physicians and hospitals. As a consequence, in 2000 the Medicare Trustees sunnily projected that the program would be solvent through 2029.

Nine years later, the latest Medicare Trustees report projects that the hospital fund (Part A) will be depleted by 2017. The trustees assert that bringing it into actuarial balance during the next 75 years will require either immediately raising the Medicare payroll tax from 2.9 percent to 6.78 percent or cutting current benefits by 53 percent. Medicare Part B, which pays for outpatient care and doctor bills, and the recently added Part D, which pays for prescription drugs, are “both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs.” Translation: About 75 percent of Medicare funds spent on doctors and drugs come from general tax revenue.

In 1993 Hayward and Peterson warned, “The Medicare program is heading for a smashup, yet our political leaders speak only of instituting new federal health-insurance programs that would cover everyone.” Plus ça change, plus c’est la même chose.

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