Slower health spending buys Medicare 2 more years

Posted at 1:15 PM, May 31, 2013
and last updated 2013-05-31 12:13:51-04

By Jeanne Sahadi

NEW YORK (CNNMoney) — A greater-than-expected slowdown in health spending has helped buy Medicare more time before it will no longer be able to pay out 100% of benefits. But the program is still facing significant funding shortfalls.

A report released Friday by the trustees of Medicare and Social Security projects the magnitude of those shortfalls over the near- and long-term.

Medicare Part A, which covers hospital costs for seniors, is financed primarily by payroll taxes paid by workers. But since 2008 those revenues haven’t kept pace with the program’s costs. The federal government has made up the difference by both paying interest on assets in the Medicare trust fund and redeeming the assets themselves.

But that Medicare trust fund will be exhausted by 2026, the trustees estimated. Last year, the report put the date of insolvency at 2024.

If nothing is done, the revenue coming into Medicare Part A will be able to cover just 87% of expected costs in 2033. By 2050 and beyond, it will only cover 70%.

Medicare Part B, which covers visits to the doctor, and Medicare Part D, which covers prescription drug costs, are financed primarily through premiums paid by seniors and by general federal revenue. Neither has a trust fund. And as program costs have risen, premiums have covered a smaller and smaller share. Consequently, general revenue today covers roughly 75% of costs.

In terms of Social Security, the trustees estimate the trust fund exhaustion date will be 2033, the same as their estimate last year. At that point the program will be able to pay three-quarters of promised benefits through 2087.