A Project of The Annenberg Public Policy Center

Going Out of Business?

A new ad goes too far when it says Medicare will be "bankrupt" in eight years.


A new health care ad from a conservative group claims that "Medicare will be bankrupt in eight years." That gives a false impression. The program does have huge financial problems, but there’s no reason to think it’s going out of business as the word "bankrupt" implies. And the issue isn’t new:

  • A government report the ad refers to says the trust fund for one part of Medicare – hospital insurance – won’t have enough money to pay all benefits in 2017. Medicare’s physician and drug benefits will "remain adequately financed," says the report.
  • Government projections have found that the hospital insurance trust fund would face a shortfall "almost from its inception," according to the Congressional Research Service. But in many cases politicians have found ways to extend it. In 1970, for instance, the trust fund was expected to be insolvent in 1972.

The ad also claims that "some want to pay for health care reform with $500 billion dollars in Medicare spending cuts." Actually, the House health care bill, to which this refers, proposes a net cut in spending of $219 billion over 10 years.


The conservative group Americans for Prosperity has released a new 60-second ad through its Patients First project. The ad, which features a family doctor, Dr. Amy Siems, talking to viewers, recycles a few misleading talking points against health care legislation in Congress, but includes a new claim that is quite startling. Dr. Siems says that "Medicare will be bankrupt in eight years."

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American’s For Prosperity Ad
"Dr. Siems"

Dr. Amy Siems: I’ve been a family doctor for 18 years and I’m concerned that some in Washington are making plans that could lead to government control of many Americans’ health care. I think that’s dangerous. Bureaucrats should never be able to deny or delay the care that doctors provide. And if the government starts to take over health care, your choices could be reduced. Health care could be rationed. Quality would suffer. Washington already controls Medicare and Medicare will be bankrupt in eight years. Despite this looming bankruptcy, some want to pay for health care reform with $500 billion dollars in Medicare spending cuts. And look at Canada and England where government controls health care. Patients wait up to a year for vital surgeries. Delays that could be deadly. So instead of forcing Americans into the kind of health care system that has already failed, Washington needs to fix Medicare first.

Narrator: Learn more at JoinPatientsfirst.com

Siems: Government should never come between your family and your doctor.


Bankrupt? Within a Decade?

Yikes. Quite a scary claim to make about a program that encompasses 16 percent of the federal budget and benefits 45 million Americans. But the word "bankrupt" is far too strong to accurately describe Medicare’s problems.

The AFP/Patients First ad points to a government report as the source of its claim, and that report does say Medicare’s "[p]rojected long run program costs are not sustainable," and that its problems are even more severe than those of Social Security. The report says further that the trust fund for one part of Medicare – hospital insurance – is projected to be insolvent in 2017, and calls that "an urgent concern." But that’s not the same thing as being "bankrupt," and it only applies to one of four distinct parts of the overall Medicare program. As the Social Security Administration explains:

  • Hospital insurance (Part A) pays for inpatient hospital services, skilled nursing facility care and hospice care.
  • Medical insurance (Part B) covers physician services and medical supplies not paid for by Part A.
  • Medicare Advantage (Part C) is an option to receive benefits through a private insurance company.
  • Part D is Medicare’s prescription drug coverage.

The ad refers to the Social Security and Medicare Boards of Trustees 2009 Annual Report, which indeed makes some dire predictions for Medicare Part A, the segment that’s in danger of running out of money. Part A relies primarily on payroll taxes and its trust fund, or reserves, to pay for benefits. Parts B and D, meanwhile, funded by general revenues and monthly premiums, "are both projected to remain adequately financed into the indefinite future," according to the report. (The trust fund for those segments, though, "will continue to require general revenue financing and charges on beneficiaries that grow substantially faster than the economy and beneficiary incomes over time.")

Funds for Part A will only be able to pay 81 percent of the projected spending in 2017, and less each year after that, according to the trustees’ estimates:

Trustees Report: The projected date of HI [Hospital Insurance]Trust Fund exhaustion is 2017, two years earlier than in last year’s report, when dedicated revenues would be sufficient to pay 81 percent of HI costs. Projected HI dedicated revenues fall short of outlays by rapidly increasing margins in all future years.

The report goes on to say that the HI trust fund "could be brought into actuarial balance over the next 75 years" by either significantly increasing the payroll tax which funds it, cutting spending by half, or a combination of those measures. "Larger changes would be required to make the program solvent beyond the 75-year horizon," the report says.

But warnings of depleting the HI trust fund aren’t new. In a 2008 report, the Congressional Research Service wrote that "almost from its inception, the HI trust fund has faced a projected shortfall. The insolvency date has been postponed a number of times, primarily due to legislative changes which had the effect of restraining growth in program spending." Indeed, a 1983 report from the Senate’s Special Committee on Aging forecasted that:

Senate Special Committee on Aging, 1983 report: Balances in the HI trust fund are projected to be exhausted during 1987. Though the HI balance was a substantial $18.7 billion at the end of 1981, borrowing by the old-age and survivors insurance trust fund (OASI) reduced the HI balance to $8.3 billion at the end of 1982. … This already low balance is projected to decline slowly through 1986 and rapidly in ensuing years, as outlays exceed income by a widening margin.

And that is hardly the only year in which a government report projected shortfalls just around the corner, as this table, re-created from a CRS report, makes clear:

We don’t mean to say that the projections about the future of the HI trust fund shouldn’t be taken seriously, or that Medicare in general isn’t facing long-term funding issues. But it’s not going to be “bankrupt in eight years.”

The Obama administration has commented on the trustees report several times. Health and Human Services Secretary Kathleen Sebelius called it “a wake up call for everyone who is concerned about Medicare and the health of our economy,” adding that “it’s yet another sign that we can’t wait for real, comprehensive health reform.” And the administration has put forth proposals that it says will extend the life of the trust fund by several years.

We can’t predict whether the Obama administration and Congress will find a way to save the HI trust fund yet again, but judging from the political past, it seems likely.

At the point where the hospital insurance trust fund is expected to run dry in 2017, the current payroll tax is estimated to cover only 81 percent of the projected outlays (compared to 88 percent this year), and less each year after that. In the past, scheduled depletions have been offset by a combination of increased taxes and other funding, as well as decreased payouts. The original HI tax rate was 0.35 percent in 1966 and increased steadily over the next three decades. It is now 1.45 percent on all covered earnings, and both the employee and the employer pay it. Hospitals, meanwhile, accept Medicare payments that are about 68 percent of what private insurance pays, according to the Lewin Group, and in July, hospitals agreed to cutting $155 billion in Medicare and Medicaid over 10 years, primarily through adjusting annual payment increases.

Other Claims

We’ve examined ads from Patients First and its parent group, Americans for Prosperity, before, and they’ve put forth the same straw man argument: that Congress wants a Canadian- or British-style health care system. As we’ve pointed out in several articles, that’s not what the legislation in Congress would set up. As evidence, the back-up for this ad includes a column in the Tucson Citizen that repeats falsehoods we’ve already debunked about the stimulus bill, which was passed in February.

The group’s support also includes several articles about patients in Canada waiting for specialist appointments, MRIs and even surgeries. It’s Dr. Siems’ opinion that this amounts to a “system that has already failed.” Others would disagree, such as a Canadian scientist quoted in a 2007 article that’s among the group’s back-up: " ‘Canada is not a medical utopia, as some would have you believe, or a disaster, as others claim,’ said Jack Tu, a senior scientist at the Toronto-based Institute for Clinical Evaluative Sciences and co-author of a recent study on waiting times. ‘Most people get care in a reasonable amount of time. What you hear about are the horror stories.’ "

But a debate on whether or not the system has “failed” north of our border is irrelevant. The health care legislation in Congress doesn’t amount to “forcing Americans” into such a system, anyway.

The doctor in the ad also says that "some want to pay for health care reform with $500 billion in Medicare spending cuts.” But that’s more than double the net amount the House legislation proposes to save from Medicare. It’s true that the House health care bill calls for getting $500 billion in savings out of Medicare, but its substantial increases in Medicare spending reduce the net amount cut from the program to $219 billion over 10 years, according to the Congressional Budget Office.

– by Justin Bank and Lori Robertson


Financing Medicare: An Issue Brief.” The Kaiser Family Foundation. Jan 2008.

Medicare, SSA Publication No. 05-10043. Social Security Administration. Sep 2009.

Status of the Social Security and Medicare Programs. A Summary of the 2009 Annual Reports. Social Security and Medicare Boards of Trustees. 2009.

Prospects for Medicare’s Hospital Insurance Trust Fund.” Special Committee on Aging, United States Senate. Mar 1983.

O’Sullivan, Jennifer. “Medicare: History of Part A Trust Fund Insolvency Projections.” Congressional Research Service. 28 Mar 2008.

Department of Health and Human Services. Sebelius Statement on New Medicare Trustees’ Report, news release. 12 May 2009.

WhiteHouse.gov. Paying for Health Care Reform, Medicare fact sheet. Accessed 7 Oct 2008.

Congressional Budget Office. Letter to Rep. Charles B. Rangel. 17 Jul 2009.

Davis, Henry L. “Is universal health care worth waiting for?” Buffalo News. 29 Jul 2007.