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Reforming Medicare or Shifting Costs?

July 11, 2000

The Medicare Trustees recently released their annual reports to Congress. This year's forecast for the hospital trust fund (Medicare Part A) was one of the rosiest we've seen in years. Newspapers across the country reported that under intermediate economic conditions, the Medicare hospital trust fund would remain solvent until 2023. Yet, last year's report said it would go broke in 2015. How was the insolvency date improved so drastically in just one year?

Accounting Gimmick or True Reform?

The hospital trust fund was "reformed" primarily by shifting two-thirds of the financing of home care from Medicare Part A (financed by the 2.9 percent Medicare Payroll tax) to Medicare Part B (financed primarily by general tax revenues). This transfer was significant because home care had been one of the fastest growing programs under Part A. And although overall hospital expenditures were reduced between 1998 and 1999, Part B costs grew from $77.6 billion to $82.3 billion during this period.

Clearly, transferring a significant portion of home care from Medicare Part A to Part B did not provide a long-term method for financing the hospital program. In the short term, politicians might get away with using accounting gimmicks to say they reformed Medicare. But in the long run, they won't be able to hide the forthcoming growth in the Medicare program when a historically large number of baby boomers begin to retire and enter the program.

This article was originally published in the May/June 2000 issue of Health Freedom Watch.

Was the Medicare hospital program truly reformed or were accounting gimmicks used to "save" the program?