Longer life for Medicare

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for May 9, 2001.

Longer life for Medicare
The trustees of the Medicare program issue an annual report every spring on the status of the program. The main focus of the report is the trust fund for Medicare hospital insurance (HI, also called Medicare Part A). Medicare HI is funded with a payroll tax on earnings of 1.45%, paid by both workers and employers. The tax rate has remained unchanged since 1986 (and no increases are planned), although health costs have risen dramatically since that time. (Medicare Part B covers doctor visits and services received outside a hospital. It is primarily funded from general federal revenues and does not face the same 75-year scrutiny as the trust fund for Part A.)

In their 2001 report, the Medicare trustees project that income received by the Medicare HI trust fund will exceed outlays for the next 19 years, through 2020. The surplus each year, as in the past, is used to purchase U.S. Treasury bonds that pay interest to the fund. From 2021 through 2028, income to the fund will fall short of expenses and the shortfall will be filled by redeeming these treasury bonds. By 2029, the trust fund will be exhausted and tax revenue will cover just 68% of costs.

Last year's report projected that the fund would be exhausted in 2023, 6 years earlier than the most recent estimate. The 1997 report predicted trust fund exhaustion in 2001. So over the last 4 years, the trust fund has gained 28 years of solvency (see figure above).

Despite the gloom and doom with which the Medicare trust fund projections have been received on Capitol Hill and in the media in recent years, the current estimate of 28 years of trust fund solvency is a historic record for longevity. Since 1970, in only three years have the trustees projected more than 15 years of solvency.

Check out the Snapshot for May 16 for more about the Medicare trustees' report.

This week's Snapshot by EPI economist Edie Rasell.

Check out the archive for past Economic Snapshots.