Death and Taxes - Politicians Ignoring Medicare Crisis

The Board of Trustees for Medicare and Social Security this week issued another warning to Congress that the Medicare Hospital Trust Fund will become insolvent by 2019.

Federal rules require the warning be sent when non-dedicated revenues will soon account for more than 45 percent of Medicare’s outlays, the trustees said in the report released Tuesday. The major source of Social Security and Medicare financing is dedicated funds from payroll taxes on earnings that are paid by employees and their employers. Self-employed people are charged the equivalent of the combined employer and employee tax rates.

The trustees said a Presidential proposal to reduce the plan’s use of general tax revenues is needed.

But don’t expect that to occur this election year, Lehman Brothers Healthcare Facilities Analyst Adam Feinstein warned investors last week. 

“The report draws a very similar conclusion to last year’s report, which also resulted in no Congressional action, suggesting more of the same this year,” Feinstein wrote. “Nonetheless, the report serves as a clear reminder of the longer-term financing issues facing the Medicare program.”

The trustees’ report is widely followed by the investment community because it gives insight into the government’s future reimbursement environment to hospitals.  The Trustees said that Medicare spending was 3.2 percent of the Gross Domestic Product (GDP) in 2007. The Trustees project Medicare spending will reach 10.8 percent of GDP in 2082.

“The financial difficulties facing Social Security and Medicare pose enormous challenges,” the Trustees said in the report. “The sooner these challenges are addressed, the more varied and less disruptive their solutions can be.”

Feinstein covers Community Health Systems, HCA, Health Management Associates, LifePoint Hospitals, Tenet Healthcare and Universal Health Services.