Medicare Trustees: Democrats’ Plan Ends “Medicare As We Know It,” Has “Actual” 17% Benefit Cuts

June 22, 2011

Public Trustees of Medicare Agree that Democrat Plan for Medicare Will “Bankrupt” the Program and Cut Benefits

The public trustees of Medicare admitted Wednesday that the Democrats’ plan for Medicare would “bankrupt” the program and lead to real benefit cuts. Although the current projection is that Medicare will go bankrupt in 2024, the trustees admitted that the program’s finances will be “on a razor’s edge” for several years before that, especially with the likelihood that program costs will run higher than anticipated.
Indeed, the Democrats’ plan for Medicare is so radical that it would “end Medicare as we know it,” the trustees said.
Medicare’s Obama-appointed trustees have said before that the Democrats’ plan for Medicare would require an immediate 17 percent cut in benefits. How much worse will cuts to seniors have to be before Democrats’ get serious about saving and strengthening the program?

BACKGROUND:

Testifying Wednesday morning before the House Ways and Means Subcomittee on Health, the two public trustees of Medicare, Dr. Charles P. Blahous and Dr. Robert Reischauer, admitted that the Democrats’ plan for Medicare would “bankrupt” the program and lead to benefit cuts:

TRUSTEES AGREE THAT MEDICARE IS GOING “BANKRUPT”:

REP. DAVE REICHERT (R-WA): “Medicare is going bankrupt, do you both agree with that? And it’s accelerating, true?”

BLAHOUS: “Yes.”

REISCHAUER: “Yes.” (Remarks from Charles P. Blahous and Robert Reischauer, “Hearing on the 2011 Medicare Trustees Report,” Committee On Ways & Means, U.S. House Of Representatives, 6/22/2011)

CUT IN BENEFITS UNDER DEMOCRAT MEDICARE PLAN IS REAL, NOT JUST HYPOTHETICAL:

REP. PETER ROSKAM (R-IL): “So that cut just so I’m clear, is not a hypothetical cut, it’s not a hypothetical delay, it’s an actual delay in payment to the point of reaching this 17% number based on your own projections. Is that right?”

BLAHOUS: “That’s right. The Social Security Act which deals with these trust fund issues is very explicit that payments can only be made from the trust funds.” (Remarks from Charles P. Blahous, Committee On Ways & Means, U.S. House Of Representatives, 6/22/2011)

Indeed, with Medicare unable to discharge its financial obligations under the Democrats’ plan, the trustees agreed that the Democrats’ plan for Medicare would “end Medicare as we know it”:

DEMOCRATS’ PLAN FOR MEDICARE WILL “END MEDICARE AS WE KNOW IT”:

ROSKAM: “In fact, Medicare as we know it will end in 2024 absent some change in policy or some change in moving forward. That’s right isn’t it?”

BLAHOUS: “Yes.” (Remarks from Charles P. Blahous, Committee On Ways & Means, U.S. House Of Representatives, 6/22/2011)

OBAMACARE HAS ALREADY MADE “SIGNIFICANT CHANGES TO MEDICARE.”

REP. TOM PRICE (R-GA): “Medicare as we know it, the program that exists right now, has been changed significantly under PPACA. Would you agree with that statement?”

REISCHAUER: “There have been significant changes in certain aspects.” (Remarks from Robert Reischauer, “Hearing on the 2011 Medicare Trustees Report,” Committee On Ways & Means, U.S. House Of Representatives, 6/22/2011)

To make matters worse, the written testimony submitted by the trustees warns that there “are significant reasons to believe that actual costs will be higher in practice than projected” and that the Medicare trust fund is “on a razor’s edge” before “running out altogether in 2024”:

“SIGNIFICANT REASONS TO BELIEVE THAT ACTUAL COSTS WILL BE HIGHER IN PRACTICE THAN PROJECTED”: “In a nutshell, Medicare cost projections are highly uncertain and there are significant reasons to believe that actual costs will be higher in practice than projected in the 2011 report, as the report itself notes in several places.” (Testimony from Charles P. Blahous, Committee On Ways & Means, U.S. House Of Representatives, 6/22/2011)

TRUST FUND “VERY LOW” AND “ON A RAZOR’S EDGE” BEFORE “RUNNING OUT ALTOGETHER IN 2024”: “Here I will simply relate this shift to the theme of overall uncertainty in the Medicare projections. It may exaggerate—but not by much—to note that the HI Trust Fund projects to be on a razor’s edge for several years, starting by the latter part of this decade. This was true not only in the 2010 report but is also true in this year’s report. By mid-2015, for example, we only project enough assets in the HI Trust Fund to cover less than half a year of benefit payments in the absence of incoming dedicated revenues. This financing reserve is thus very low for several years before running out altogether in 2024. It thus does not take a great deal of creativity to imagine a 2012 report in which the HI Fund exhaustion date moves again by several years, in either direction, even if there are relatively subtle changes in projections of annual program operations.” (Testimony from Charles P. Blahous, Committee On Ways & Means, U.S. House Of Representatives, 6/22/2011)

These latest warnings come on top of warnings from the Obama-appointed trustees of Medicare that immediate benefit cuts of 17 percent would be necessary to address the current Medicare deficit and avoid bankruptcy. Nonetheless, Democrats are stubbornly defending their plan to bankrupt Medicare and cut benefits. What will it take for Democrats to get serious about working with Republicans to preserve and protect Medicare for future generations of seniors?:

DEMOCRAT PLAN MEANS AN “IMMEDIATE 17-PERCENT REDUCTION” IN BENEFITS OR “IMMEDIATE 24-PERCENT INCREASE” IN TAXES: “The long-range financial imbalance could be addressed in several different ways. In theory, the standard 2.90-percent payroll tax and the additional tax 0.9-percent tax on high-income earners could be immediately increased by the amount of the actuarial deficit to 3.69 percent, or expenditures could be reduced by a corresponding amount. Note, however, that these changes would require an immediate 24-percent increase in the tax rate or an immediate 17-percent reduction in expenditures.” (pp. 28-29, “2011 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 5/13/2011)

AMERICAN ACADEMY OF ACTUARIES: BENEFIT CUTS COULD BE EVEN HIGHER: “The projected HI deficit over the next 75 years is 0.79 percent of taxable payroll. Eliminating this deficit would require an immediate 24 percent increase in payroll taxes or an immediate 17 percent reduction in benefits—or some combination of the two. Delaying action would require more drastic tax increases or benefit reductions in the future.” (“Medicare’s Financial Condition: Beyond Actuarial Balance,” American Academy of Actuaries, May 2011)