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Medicare's Health to Fail, Rapidly  

By John D. McKinnon, the Wall Street Journal

March 24, 2004
 

WASHINGTON -- Medicare's trustees said the program is on track to go bankrupt in 15 years -- seven years sooner than previously projected -- reflecting soaring health-care costs and changes ordered by Congress and the White House.  

The government-run health-care program also will start paying out more than it is taking in as soon as this year, compared with last year's estimate of 2013, according to the Medicare trustees' annual report for 2004. The outlook for Social Security remained unchanged.  

The sharp decline in Medicare's long-term financial health reflects a combination of higher health-care spending and lower payroll-tax revenues, as well as effects of last year's Medicare overhaul legislation, which created a prescription-drug benefit as well as a variety of financial incentives for managed-care companies to participate in the program. The report shed further light on the Bush administration's internal indications that the prescription-drug bill would be more expensive than congressional analysts thought.  

Yesterday's announcement touched off fresh assaults on President Bush's handling of the prescription-drug legislation -- and his fiscal policy more broadly -- as the campaign season heats up.  

"Let's give credit where credit is due -- it's all due to the Bush administration," said Rep. Pete Stark (D., Calif.). He said the Republican prescription-drug bill "lavishes billions of dollars on HMOs" in a futile attempt to generate managed-care savings.  

Massachusetts Sen. John Kerry, the presumptive Democratic presidential nominee, pointed to Mr. Bush's tax cuts, which he said would doom Medicare if they're made permanent as Mr. Bush wants.  

Mr. Kerry's lengthy analysis didn't spell out his own plan for Medicare overhaul, and also was light on how Mr. Kerry would alter Mr. Bush's tax cuts, which are set to expire over the next few years. A Kerry economic adviser said the candidate would first focus on putting the "fiscal house in order" by repealing Mr. Bush's tax cuts for people earning $200,000 or more, and by closing corporate loopholes. Mr. Kerry also would reduce Medicare "giveaways" to HMOs and drug companies, the adviser said.  

Conservatives, meanwhile, said the report shows the need for more changes in the program. "Medicare's bleak outlook is the unsurprising result of letting tens of millions of people spend someone else's money," said the Cato Institute's Michael Cannon. "The only responsible choice is to finance future Medicare obligations through reforms that encourage personal savings."  

Administration officials added that the bulk of Medicare's financial deterioration stemmed not from changes in the prescription-drug bill, but from skyrocketing health-care costs. They also said the trustees' report likely overstates the cost of the Medicare bill, by underestimating possible savings through preventive health care and disease management.  

Treasury Secretary John Snow again pointed to the Bush administration's proposals for medical-liability reform, reduction of medical errors and greater health-care efficiencies through technology.  

The administration currently is investigating whether officials deliberately suppressed concerns about the prescription-drug bill's costs in order to secure its passage. Health and Human Services Secretary Tommy Thompson said he believes lawmakers knew generally of the department's concerns ahead of time, and that providing detailed estimates wouldn't have made any difference.  

With the changes in outlook and the addition of the Medicare prescription-drug benefit, the present value of the unfunded 75-year liability in Medicare reached $27.7 trillion, while the unfunded liability for Social Security is $3.7 trillion.  

Meanwhile, administration officials announced that the outlook for Social Security, the other big government safety net for seniors, was basically unchanged. It is expected to run out of money in 2042, the same projection as last year.

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