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February 13, 2006

Actuaries Urge President to Address Medicare's Deteriorating Finances in the State of the Union Address

bush.jpgWhile tackling high medical costs and reducing the number of uninsured are sure to be highlights of President Bush's State of the Union address, actuaries are urging the president to include Medicare's financial concerns in the discussion.

"Reducing the number of uninsured Americans and making health care more affordable are certainly important and worthwhile goals. However, we urge the president to address Medicare's viability as well," said Cori Uccello, the American Academy of Actuaries' senior health fellow. "Addressing health care costs without tackling Medicare's financial problems would ignore a significant piece of the health care puzzle."

Uccello and the Academy, citing recent Medicare Trustees Reports, have repeatedly warned of the significant long-term financing problems facing the program. Academy issue briefs such as Medicare's Financial Condition: Beyond Actuarial Balance and Medicare: Next Steps stress that the fund for Medicare's Hospital Insurance program, which pays for inpatient hospital care and is financed primarily through earmarked payroll taxes, is expected to be tapped
out by 2020.

"Unless Medicare undergoes fundamental change, the program will face increasing financial pressures and ultimately won't have enough money to pay benefits," Uccello said. "In addition, the rising number of Medicare beneficiaries and increasing health care costs will cause Medicare to consume ever-growing shares of the federal budget and the economy as a whole."

Total Medicare spending was $309 billion in 2004, or 2.6 percent of the nation's Gross Domestic Product (GDP). Medicare spending will likely increase to 3.3 percent of GDP in 2006, and then is expected to double to nearly 7 percent of GDP by 2030, continuing to rise thereafter. If total federal revenues continue at their historical average of about 19 percent of GDP, and if no changes are made to the program, Medicare spending will take up a third of all federal revenues by 2030.

Increased spending for Medicare will place a growing strain on the U.S. economy and may crowd out other federal programs.

"The federal government is responsible for funding national defense, homeland security, Social Security, interest on the national debt, and thousands of other programs," Uccello said. "When Medicare totals a third of the budget, what programs will we be able and willing to eliminate or cut dramatically?"

While it is unknown what tradeoffs the nation will be willing to make in the future, Uccello stressed that without fundamental changes in Medicare financing it is almost certain that hard choices will have to be made.

"The president is appropriately turning attention to high health care costs and the uninsured," Uccello said, "but at the same time Medicare also must be addressed, and sooner rather than later."

For more information or to schedule an interview with Cori Uccello, call Andrew Simonelli, media relations manager, at 202.785.7872. Copies of Medicare's Financial Condition: Beyond Actuarial Balance and Medicare: Next Steps can be accessed by visiting:

The Academy is a 15,000-member non-profit, non-partisan professional association representing all actuaries practicing in the United States. Based in Washington, D.C., the Academy conducts an extensive public policy program at the state, federal, and international levels, bringing actuarial expertise to bear on issues such as Social Security, Medicare, insurance regulation, and pension reform. The Academy also sets and maintains standards of actuarial
qualification and practice.

Posted by Tom Troceen