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CAPITOL PERSPECTIVES Washington's Baseless Sense Of Complacency On Entitlement Reform F or more than a year, Washington was gripped with go into effect, Medicare costs will rise to 6.1% of GDP in 2040 the prospects of a grand bargain whereby the country and 7.2% in 2087. would finally put its fiscal house in order and the two With 11,000 Baby Boomers aging into Medicare every day, parties would come together on a package of shared the country still has not fundamentally prepared for the demosacrifice of entitlement cuts and revenue increases. graphic shift of a ballooning aging population living longer and But no longer. President Obama lackadaisically issued his bud- using more Social Security and Medicare resources with fewer get blueprint two months late. And other than reducing project- workers to support them. ed inflation updates for Social Security and marginal tax rates, More troubling is that the Medicare Trustees report, which is it contained no bold ideas. No fundamental Medicare reform supposed to inform policy makers on the health of the Medicare was put on the table, despite bipartisan interest, program, is entirely detached from the fundamenand no real savings proposed at all from either tal fiscal strains the country confronts to finance the burgeoning Medicaid program for the poor or the program. For example, this year's report proObamacare itself, which the President's own actuduced headlines in newspapers across the country aries had already predicted to be massively more of an improving fiscal picture — Medicare's trust expensive than initially forecast. fund will go broke in 2026, two years later than last Then in May, the Congressional Budget Office year's projection. (CBO) observed that the annual deficit will shrink Yet that factoid totally obscures the reality that to $642 billion this year, down from the $1 trillion Medicare is massively underfunded because the plus annual deficits that the Obama Administration Medicare trust fund only records dedicated payroll John McManus, has racked up every year in office. A combination tax revenue and premiums for Medicare inpatient The McManus Group of higher revenue from the fiscal cliff deal, profits jmcmanus@mcmanusgrp.com spending. All outpatient spending — physician from Freddie and Fannie, the budget sequester, services, prescription drugs, hospital outpatient which is effectively cutting discretionary spenddepartments, etc. — is financed just 25% through ing, and slowing health costs have led to the improved budget beneficiary premiums and 75% from general revenue. Since outlook. healthcare is increasingly migrating to the outpatient setting, the As a result of these developments, the date when Congress will solvency of the inpatient Part A Trust Fund really is not relevant have to enact an increase to the debt ceiling has been pushed to the financial obligations taxpayers have for financing seniors' back from May to November, and a feeling of sanguinity has healthcare. enveloped the capital that all is well with the nation's finances A snapshot of 2012 demonstrates the extent of the budgetand no further action is necessary at this time. ary sleight of hand in mixing dedicated funding sources with Nonetheless, the fundamental fiscal challenges that confront General Fund revenue. In FY 2012, Social Security and Medicare the country in the long-term have not changed: benefits cost $1.32 trillion. Payroll taxes, Medicare premiums, Federal debt held by the public is projected to remain histori- and other fees for these programs equal $920 billion, creating cally high relative to the size of the economy for the next decade a deficit of $403 billion — $243 billion for Medicare and $160 at 77% of GDP — a level not hit since the 1940s when the nation billion for Social Security. This shortfall has to be covered by had to finance the massive undertaking of World War II. general revenue and is a driving force behind the budget deficit. Both revenues and outlays over the next 10 years are projected The Trustee's long-term outlook is even more foreboding with to be substantially above their 40-year averages: Revenues will a 50% shortfall for Social Security and Medicare over the next grow from 15.8% of GDP in 2012 to 19.1% of GDP in 2015 75 years, where dedicated taxes and premiums will only cover compared to a historical average of 17.9%. Although outlays $73.2 trillion of the expected $112.8 trillion of spending. have fallen from their 2009 high of 25.2% of GDP, they will still Things aren't getting better. They are getting worse more remain well above the historic average of 21%. slowly. Medicare costs under the U.S. Trustee's current law assumpAnd what is the administration's answer to this? On "Good tions will rise from their current level of 3.6% of GDP to 5.8% Morning America" on March 13, President Obama said, "We in 2040 and 6.5% in 2087. Under a more realistic forecast, in don't have an immediate crisis in terms of debt. In fact, for the which the slated 25% physician-payment cuts are not allowed to next 10 years, it's gonna be in a sustainable place." 10 LifeScienceLeader.com July 2013