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
This article was originally published in the May/June
2000 issue of Health
Was the Medicare hospital program truly reformed
or were accounting gimmicks used to "save" the program?