n May 2 headlines proclaimed that Medicare
would run out of money by 2018. “US Medicare fund 12 years
from running out,” was CNN’s headline. “Finances
of Social Security and Medicare deteriorate” announced the
New York Times
. “Medicare’s fiscal health is declining”
said the frontpage headline in the
Minneapolis Star Tribune
According to the media, Medicare is going bankrupt.
The source for these stories was the annual report of Medicare’s
trustees. But the trustees did not say Medicare would run out of
funds, they said Part A of Medi care, which finances hospital services,
would run out of funds. Part A accounts for only 47 percent of total
Medicare revenues. Parts B and D, which absorb the other 53 percent
of Medicare revenues, are doing just fine. Part B finances physician
services and tests. Part D finances drug coverage.
Why is Part A “running out of money” while Parts B and
D are not? Because Part A is financed with payroll taxes that all
workers pay, while Parts B and D are financed primarily by “general
funds,” i.e., by federal taxes like the income tax. Part B
is financed about 75 percent by general funds and 25 percent by
Part B premiums that are deducted from the Social Security checks
of the seniors who sign up for Part B. Part D is financed about
80 percent by general revenues and the remainder by Part D premiums
and a tax on Social Security benefits.
Parts B and D, in other words, are financed similarly to the way
the Pentagon is—with general revenues. Does anyone predict
two decades in advance that the Pentagon will be broke in year x?
Of course not. No one ever predicts the bankruptcy of Parts B or
D in year x. “Crisis” and “bankruptcy” are predicted
only for Part A because the payroll taxes that flow into the Part
A trust fund finance only a particular program, in this case, Part
Assuming that Congress does not intend to stop overpaying the Medicare
HMOs (a fact documented repeatedly by the U.S. Government Accountability
Office over the last 15 years) and take other steps to make Medicare
more efficient, the solution is either to raise the Part A payroll
tax or, better yet, shift the funding of Part A from payroll taxes
to general revenues. Shifting Part A funding from the payroll tax
would not only end the phony Medicare crisis, it would make Medicare
Part A financing fairer. The payroll tax is a regressive tax, as
it takes a greater portion from lowerincome than upperincome Americans.
Proponents of the “sky is falling” theory will oppose
shifting the financing of Medicare Part A to general revenues as
that would deprive them of the basis for their incessant squawking
about the alleged “crisis” in Medicare.
Sullivan is on the Minnesota Universal Health Care Coalition and author
The Health Care Mess