The financial outlook for the HI trust fund is significantly less favorable than projected in last year’s annual report.”

This is the 44th annual State of the Nation’s Health Finances report that goes to Congress — by name, the Honorable Nancy Pelosi, Speaker of the House, and the Honorable Joseph Biden, President of the Senate — with respect, from The Trustees –Tim Geithner, Secretary of the Treasury, the Secretary of HHS, Kathleen Sebelius, Hilda Solis, the Secretary of Labor, Charlene Frizzera, Acting Administrator of CMS, and Michael Astrue, Commissioner of Social Security.

The two key points of this sobering report are that:
1. Tax revenues will fall below health program costs in 2016 — one year sooner than last year’s forecast, as shown in the chart.

2. The Trust Funds will be exhausted in 2037 — four years sooner than last year’s forecast.

The recession’s double-whammy impact of the declining economy and increasing unemployment is the two-fisted punch that’s knocking the fiscal wind out of the fiscal health of Medicare and Social Security.

Health Populi’s Hot Points:
Oh, what a difference a recession makes! Even before the recession, which began in December 2007, Peter Orszag, then with CBO and now head of OMB, was giving speeches on the fact that Medicare would be the U.S. economy’s long-term risk to financial security for the nation.

The downturn in the economy highlights the fact that Medicare needs major fixing. Yesterday’s announcement that health industry players including providers, pharmaceuticals, and plans would hold their collective line on price increases to the tune of $2 trillion was welcomed by the Obama administration. However, this tactic alone won’t solve the long-term fiscal challenge that is Medicare as the program is currently configured.

Based on its current model, Medicare costs will grow faster than the economy — and workers’ paychecks. Currently, Medicare comprises 3.2% of the GDP –and will exceed spending on Social Security in 2028.
Unemployment has driven payroll tax income down in this recession, which has further compromised the viability of Medicare and the Trust Fund. Thus, Medicare has begun to drain interest income and assets — the lifeblood of the Trust Fund.

As in balancing any budget, we need to either increase revenue or reduce expenditures for Medicare. All stakeholders in Medicare — which include consumers/taxpayers, providers, plans, and suppliers to the industry — need to be adjust their future expectations from the program. That future will come sooner than we thought last year.