The Public Interest

The politics and realities of Medicare

Eric Cohen

Summer 2004

TRYING to understand the economics of Medicare is a difficult business, but nearly everyone agrees that things do not look good. In March 2004, the Medicare Board of Trustees issued its annual report on the financial health of Medicare Part A, which funds primarily hospital expenses, and Medicare Part B, which funds outpatient care. The prognosis was grim: The Hospital Insurance (HI) “trust fund is projected to be exhausted in 2019--7 years earlier than estimated in last year’s report.... The long-range projections for HI continue to show a very substantial imbalance.... The Part B premium and corresponding general revenue transfers will need to be increased sharply for 2005 to match projected costs.” To fix this “imbalance,” the report concluded, “would require very substantial increases in revenues and/ or reductions in benefits.”

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