This year’s report from trustees of the Medicare program pushes back the projected date of insolvency by a year — to 2019 — but in no way lessens the need to put the system on a sounder financial footing. The trouble is that the report’s projections will now force the administration and Congress to propose solutions under rules that are perversely skewed to rule out the most progressive financing.

The Medicare program has three main sources of funds: payroll taxes, general government revenues and premiums from beneficiaries. Unfortunately, an ill-considered clause in the 2003 law that established the new Medicare drug program says that no more than 45 percent of total Medicare expenditures can be paid for by general revenues. Now that the trustees, for the second year in a row, have projected that the cap will soon be exceeded, the administration will have to propose, and Congress will have to find, ways other than the progressive income tax to finance the program. 

Even if Congress were to save many billions of dollars by eliminating President Bush’s tax cuts for wealthy Americans, none of that money could be used because it would drive the contribution from general revenues above the cap. Instead, proposals will have to focus on increases in the regressive payroll tax, increases in premiums charged to beneficiaries, cuts in payments to health care providers and cuts in benefits. This is a distorted and unfair way to reform Medicare, and Congress needs to eliminate the cap or find a way around it.

One good place to look for savings is surely in the lavish subsidies provided to the private health plans that participate in Medicare. That would help lower the overall program’s costs and slow the approach of insolvency.