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Medicare’s Dirty Little Secret
It’s already insolvent.

President Lyndon B. Johnson (beside former president Harry S. Truman) signs Medicare into law, July 30, 1965.

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It is plain that these sharp increases are not viable. Nonetheless, President Obama steadfastly defends Medicare’s existing financing structure. In his address to AP reporters last month, the president called alternative (and bipartisan) approaches such as premium support to be “thinly veiled social Darwinism.” Since only the fittest will survive the future collapse of Medicare, President Obama should think hard before making such accusations.

Since taking office, President Obama has overseen a Medicare cash-flow deficit of more than $869 billion. This includes $570.7 billion in red ink accumulated since the passage of the president’s signature health-care law, which siphoned off $732 billion in Medicare funding over the next ten years. By the end of 2012, the trustees project that the Obama administration will have overseen a $1.2 trillion Medicare cash shortfall.

Left unchanged, Medicare costs will continue to escalate, leading to annual shortfalls and a projected cash-flow deficit of over $450 billion in 2020. These shortfalls lie at the heart of past and future deficits. Between 2001 and 2010, cumulative Medicare cash-flow deficits totaled $1.5 trillion, or almost 28.5 percent of the total federal debt accumulated in the hands of the public during the past decade.

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Going forward, the situation is even worse. By 2020, the cumulative cash-flow deficits of $6.3 trillion will constitute 41 percent of the nation’s total debt accumulation. Including interest costs, accumulated Medicare spending will be responsible for over 43 percent of public debt.

A sensible solution would be to offer Medicare beneficiaries the option of a defined-contribution program — as proposed by House Republicans and Mitt Romney. Seniors would be budgeted an annual contribution, which could be adjusted to reflect costs associated with their health status and financial wherewithal. For the federal budget, the result is a capped exposure to Medicare — one that would adjust to reflect the number of seniors and inflation.

That would be great news for the nation’s spending outlook. It would be even better news for the exploding debt and the threat it carries to the nation’s economic health. Most importantly, it would secure Medicare for future generations.

— Douglas Holtz-Eakin is the president of the American Action Forum and previously served as the director of the Congressional Budget Office. Jim Nussle is a former chairman of the House Budget Committee and previously served as the director of the Office of Management and Budget.



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