Making sense of the Medicare scare

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

Snapshot for June 14, 2000

Making sense of the Medicare scare
Earlier this year, the Medicare trustees released their 75-year funding assessment for this federal program that provides health insurance coverage to seniors. Like Social Security, Medicare is funded with a payroll tax on earnings. Currently the tax brings in more money than is needed to pay health care costs, so the excess money is deposited in the Medicare trust fund and used to buy U.S. treasury bonds. The bonds earn interest for the trust fund and will be redeemed for cash when needed. The trustees project that, each year through 2014, revenue from the payroll tax will exceed health expenditures, but after that time, the treasury bonds will need to be redeemed to cover the program's costs. By 2023, the trust fund will be depleted and there will be insufficient money to pay Medicare costs.

But that doesn't mean that Medicare will be broke. With no change in the program, tax revenues still will be sufficient to cover 80% of costs in 2023 and fully 51% of costs at the end of the projected period in 2075. And recently the trustees' assessment has been more optimistic each year -- in the last five years the trustees' estimate of the 75-year funding shortfall has declined by 73%. No one denies that some changes in Medicare will be necessary, but a radical restructuring -- such as converting Medicare into a voucher program -- is unnecessary and destructive.

[This Snapshot is the first in a series on Medicare; see also Snapshots for June 21, 2000 and June 28, 2000.]

Check out the archive for past Economic Snapshots.