Medicare is a national health insurance entitlement program for Americans 65 and older. The program also covers workers who have become disabled. The program has four parts:

• Part A Hospital Insurance, financed primarily by current workers' payroll taxes (1.45% payed by current employers and employees), covers hospital services, post-hospital services, and hospice care.


• Part B Supplementary Medical Insurance, financed primarily by general tax revenues (as well as premiums and copayments), provides optional coverage for physician services, outpatient hospital care, home health care and medical equipment.


• Part C "Medicare Advantage" provides managed care options for beneficiaries enrolled in Parts A and B.


• Part D Prescription Drug Coverage, financed by general tax revenues and premiums, provides optional drug coverage for the elderly and disabled.

HI Trust Fund already running a cash deficit.--The 2009 Trustees Report found that Medicare's Hospital Insurance Trust Fund already paid out more in benefits last year, than it received in cash income.

Moreover, cash deficits will continue to grow due to the rapid increase in health care costs and the retirement of the baby boom generation.

Part A Trust Fund Income in 2008*: $215 billion. Outgo during 2008: $236 billion.

SMI Trust Fund: Medicare Part B and Part D comprise the Supplementary Medical Insurance (SMI) Trust Fund. However, since general revenues are automatically pumped into this "trust fund" to cover expenditures not paid for by premiums and copayments, it is not a trust fund in any meaningful sense. This stands in contrast to the HI Trust Fund, which is financed by a dedicated revenue source (primarily payroll taxes).

*(Excluding interest from the Treasury, which is simply an intragovernmental transfer)

2009 Medicare Trustees Report

Last week, the Trustees of the Social Security Trust Funds (Old-Age, Survivors, and Disability) released their annual report. In a nutshell, following is the status of the trust funds, based on the Trustees' findings:

• Social Security is a pay-as-you-go program where incoming payroll tax revenue revenues (6.2% each from employers and employees) pay for benefits disbursed to retirees and disabled Americans.


• Cash flow deficits are projected to begin in 2016, as opposed to last year's estimate of 2017.


• Cash deficits will continue and worsen as the baby-boom generation retires.


• The assertion that "social security surpluses" will keep the program solvent until 2037 is misleading, because the surpluses do not actually exist except on paper. The surpluses consist of IOU's from the Treasury Department to the Social Security Trust Funds (Treasury Bonds) and can be redeemed only if taxes are raised, spending is cut, or the Treasury borrows the money.


• Dedicated tax income (including taxation of benefits) projected for 2016: $986 billion.
  Benefit payments projected for 2016: $1,005 billion

Who are the Trustees? Secretary of the Treasury Geithner; Secretary of Labor Solis; Secretary of HHS Sebelius; and Commissioner of Social Security Astrue. The two public trustee positions are vacant.

2009 Social Security Trustees Report

An effective Social Security "fix" is not technically complicated but is politically complicated in today's highly partisan environment. Nevertheless, the longer the President and Congress delay action, the more difficult the remedial measures will become.

Fixing the Social Security system requires a commitment by both parties to work together, as they did on the Greenspan Commission in the early 1980s and on which Senator Bob Dole (R-KS) and the late Senator Daniel Patrick Moynihan (D-NY) served.

A bipartisan Commission should examine all options with no preconditions. Some combination of the following policy options would lilkely be considered.

• adjusting the calculation of annual cost of living adjustments (COLAs) or placing modest limits on COLAs;


• using "progressive indexing" to slow the growth in initial benefits for higher income retirees;


• a modest increase in the taxation of Social Security benefits for high-income individuals;


• small and gradual increases in the retirement age (to address longer life spans and the deteriorating ratio of workers to retirees); and


• adjusting or restructuring the payroll tax which currently applies to wages up to $106,800 per year.

Social Security's looming shortfall should be addressed without further delay. The sooner adjustments are made, the more gradually they can be phased in. Moreover, it would be fiscally irresponsible allow our nation's rapidly growing public debt to be further exacerbated by ballooning Social Security deficits in the next decade.

This week the Senate will take up a $91 billion FY 2009 supplemental appropriations bill to provide additional funding for the wars in Iraq and Afghanistan and other needs. The funds are intended for military operations and other government programs during the remainder of fiscal year 2009 (which ends September 30. 2009).

The House last week passed an $85 billion version of the war supplemental (H.R. 2346) by a vote of 368-60.

As passed by the House last week, the supplemental bill would also provide funds for:

• pandemic flu preparedness and response;
• wildfire suppression;
• nuclear non-proliferation (to safeguard nuclear material in Russia and other sites);
• military assistance to Pakistan;
• economic and security assistance to Egypt, Israel, Lebanon, Jordan, the West Bank, and Gaza;
• international food, refugee, and disaster assistance;
• contributions for UN peacekeeping;
• the Global Fund to Fight AIDS;
• the International Monetary Fund for developing countries impacted by the financial crisis;
• special pay for military personnel who have had their enlistments involuntarily extended since 9/11; and
• interoperable communications for the U.S. Capitol police.

The Senate bill would provide $1.4 billion more in war funding than President Obama requested, but $5.4 billion less than the House-passed version.

Senate Appropriations Committee Summary of the FY 2009 Supplemental Bill

House Appropriations Committee Summary of the FY 2009 Supplemental Bill

House Earmark List and Certification Letters

House Appropriations Committee Fact Sheets on the Supplemental Appropriations Bill

Today (May 18, 2009) Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Republican Chuck Grassley (R-IA) released policy options for financing health care reform. Under rules set forth by this year's budget resolution, the costs of health care reform must be fully offset by spending cuts and/or tax increases.

The document does not endorse specific options, but seeks to define the universe of possible funding sources. Specific options described by the Finance Committee report include the following:

• modify the exclusion for employer-provided health care;
• modify the exclusion of Medicare benefits from income;
• modify or repeal the deduction for medical expenses exceeding 7.5% of adjusted gross income;
• modify Health Savings Accounts;
• improve Medicare payment accuracy;
• modify the payment rate for home health services and inpatient services;
• adjust reimbursements for high-growth, over-valued physican services;
• modify payments for medical equipment;
• increase Medicaid drug rebates;
• modify Medicare beneficiary contributions;
• means-test Medicare Part D (Rx drug) premiums;
• extend Medicare payroll tax to all state and local government employees
• modify the requirements for tax-exempt hospitals
• impose a uniform alcohol excise tax
• impose a sugar-sweetened beverage excise tax

Full text of report: "Financing Comprehensive Health Care Reform"