Economy Likely to Move Up Medicare's Insolvency

Federal health officials estimate that the struggling economy will speed up by one to three years the exhaustion of the Medicare trust fund covering hospital and nursing home care.

A USA Today survey of state financial reports finds that states and local governments have set aside virtually no money to pay for the $1 trillion in medical benefits they owe retired civil employees.

(ABC News Photo Illustration)

Trustees for the Social Security and Medicare programs warned last March that the trust fund for Medicare Part A would become insolvent in 2019. But the chief actuary for Medicare said Monday the economy will likely generate less revenue through payroll taxes than the trustees had projected.

Once the trust fund is exhausted, the federal government will continue to pay for hospital care and other services, but it initially would only have enough money coming in to cover 78 percent of estimated costs.

Trustees issue a once-a-year report on the financial conditions for Social Security and Medicare. In the fall, the trustees get an update that tells them what's happening versus what their latest projection indicated. In the latest update, Medicare's top actuary braced the trustees for a deterioration in Medicare's finances.

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"Right now, we know that we're in the start of the recession. We don't yet know how severe it might be," Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, said in an interview. "We did a very, very rough estimate suggesting that because of the recession, the exhaustion date might advance anywhere from one to three years."

That estimate would place the exhaustion of the Part A trust fund somewhere between 2016 and 2018.

Foster said that higher unemployment as well as smaller wage increases are behind the projected drop in revenue for Medicare Part A. Services covered through the Part A trust fund include inpatient hospital care, nursing home care, hospice and home health.

Health and Human Services Secretary Mike Leavitt, one of the trustees at Monday's meeting, said that Foster's update reinforced his concern that too many people view Medicare's finances as one that is in the distant future.

"We're not talking about some future president. We may be talking about this one," Leavitt said, referring to President-elect Barack Obama."