TAKING MEDICARE OFF-BUDGET AND DEDICATING THE RESULTING INTEREST SAVINGS TO EXTEND ITS SOLVENCY
June 26, 2000
Following the leadership of Vice President Gore, President Clinton is proposing to take Medicare off-budget. This would mean that, like the Social Security surplus, the projected $403 billion Medicare surplus would, like the Social Security surplus, not count towards the on-budget surplus and therefore could no longer be diverted for other purposes. Taking the Medicare surplus off-budget would ensure that Medicare is protected for paying down the debt to help strengthen the life of the Medicare program. The President would also dedicate the total interest savings that result from using the Medicare surplus for debt reduction to its trust fund, contributing towards extending its life to at least 2030.
What Taking Medicare Off-budget Means
· The Administration projects that if current policies are continued, Medicare Part A, which covers hospital expenses, will run a surplus of $403 billion from 2001-10. This surplus is the excess of Medicare income, principally from the 2.9 percent payroll tax (combined employer and employee), over benefit payments and administrative costs. The Medicare surplus has grown from $4 billion in 1993 to $24 billion in 2000.
· Under previous budget accounting conventions, this Medicare surplus was treated as part of the total on-budget surplus and was thus available for new spending on other programs or tax cuts.
· By taking Medicare Part A off-budget, the President proposes to make it unavailable for other spending or tax cuts. Instead, the projected baseline Medicare surplus would be used to pay down the debt.
· Taking Medicare off-budget, like maintaining Social Security off-budget, honors the social contract of the payroll tax. Workers pay their payroll taxes today in the expectation that they will receive Social Security and Medicare benefits in the future. If there are any surpluses in Social Security or Medicare today, they should be used only for paying down the debt to strengthen Social Security and Medicare, not spent on other programs or tax cuts. They should not be used to meet budget targets or pay for other spending increases or tax cuts.
On-budget Surplus (baseline projections)
Unified Surplus $4.193 trillion
Social Security Surplus (includes a small Postal Surplus) - $2.320 trillion
Medicare HI Surplus - $0.403 trillion
On-budget Surplus $1.470 trillion
Extending the Solvency of Medicare to at Least 2030
· Taking Medicare off-budget does not eliminate the need to make Medicare more efficient and to provide it with additional resources to meet future needs. By itself, it does not extend the life of the Medicare trust fund.
· Taking Medicare off-budget helps pay down debt today and increases investment and growth, helping to prepare the Nation for the challenge of the retiring baby boom generation. It also results in interest savings to the Federal government. Instead of using these interest savings for tax cuts or spending increases, the President proposes to transfer an amount equal to the total interest savings ($115 billion over the next ten years) to the Medicare trust fund to extend its solvency.
· Together with the President's reforms to increase competition and efficiency and reduce fraud, these transfers extend solvency to at least 2030. This will help Medicare prepare for the doubling of its enrollment from 39 million in 1999 to 81 million in 2035.
Building on Progress
· In 1993, Medicare was projected to become insolvent in 1999. As a result of strong management, reduced fraud, policy reforms, and improvements in the economy, today Medicare is projected to be solvent to 2025 -- as long as any period of projected solvency in Medicare history.
· In 2000, the on-budget surplus, excluding Social Security and Medicare, is projected to be $39 billion. This is the first time that there has been a surplus on this basis since the Medicare program was established in 1965.
· Taking Medicare off-budget builds on the fiscal progress we have made in going from a record unified deficit of $290 billion in 1992 to a record unified surplus of $211 billion this year.