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A Project of The Annenberg Public Policy Center

Ryan’s Muddy Medicare Claims

Rep. Paul Ryan’s claim that Medicare will be "bankrupt in nine years" goes too far. The trust fund that primarily supports one part of Medicare is projected to be exhausted come 2020, according to the Congressional Budget Office. The Social Security and Medicare Boards of Trustees said it might not actually happen until 2029. That still doesn’t mean the system will be "bankrupt," though.

The House Budget Committee chairman was making the case for his 2012 budget proposal, when he told "Face the Nation" host Bob Schieffer:

Ryan, April 17: The problem is Medicare goes bankrupt in nine years unless we do something to save it. It won’t be there for future generations like my generation.

This is a claim we’ve heard before, when it was used in a conservative group’s ad during the debate over the health care law. (The claim was eight years then.) We said it left a false impression that Medicare was going out of business. The same is true for Ryan’s claim.

A spokesman for Ryan said he was referring to the CBO’s "Medicare Baseline" projections from March 18. A footnote in that report (on page 4) said that the "Hospital Insurance Trust Fund is projected to become exhausted in 2020." Medicare Part A is mainly paid for by payroll taxes that are held by the HI trust fund. Part A covers inpatient hospital services and hospice care.

But Medicare has three other parts: Part B (which covers physician services and medical supplies not paid for by Part A); Part C (Medicare Advantage, which provides benefits through a private insurance company); and Part D (which is the prescription drug benefit). Medicare Parts B and D are financed through the Supplementary Medical Insurance Trust Fund, or SMI, which is supported mostly by general revenues and premiums paid by beneficiaries. Part C includes Part A and Part B, but is coverage offered through private plans rather than traditional Medicare.

CBO’s projections for Medicare didn’t say that the SMI trust fund was in danger of exhaustion. In fact, in its 2010 report, the Social Security and Medicare Boards of Trustees said that Parts B and D were "both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs." And it projected that the HI trust fund would be exhausted in 2029. That was under its "intermediate assumptions," which are the "Trustees’ best estimates of likely future economic and demographic conditions," according to the report. At that time, dedicated revenues, which include payroll taxes and beneficiary premiums, would be enough to cover 85 percent of HI costs, the report said. The fund’s exhaustion date was 2017 under a "high-cost," or more pessimistic scenario.

This is hardly the first time government projections have said the HI trust fund would be exhausted. The Congressional Research Service reported that "almost from its inception, the HI trust fund has faced a projected shortfall." For example, in 1970, the Trustees report said the fund would be insolvent in 1972, and in 1980 the fund was expected to be depleted in 1994. Politicians keep finding ways to postpone any insolvency.

We don’t mean to downplay Medicare’s financial challenges, but the whole system isn’t going "bankrupt," as Ryan’s claim suggests.

More on Medicare

Ryan also went too far in claiming that his proposal to change Medicare would give future beneficiaries a system that "works just like the one that I have as a member of Congress." (Our colleagues at PolitiFact wrote about a similar claim by Rep. Mike Pence of Indiana.) Ryan’s plan would affect those who are 54 or younger this year. His statement is true in the sense that those future beneficiaries would choose a private insurance plan from an exchange, or marketplace, the way members of Congress currently choose their insurance from a list of plans offered to federal employees. Medicare exchange plans would have to offer a certain level of benefits and cover anyone who wanted insurance, under his plan. But there is at least one major difference between what members of Congress have and what Ryan has proposed for beneficiaries down the road.

On average, the government currently pays about 72 percent of premiums for members of Congress, and other federal employees, through a formula known as "Fair Share," which keeps a "consistent level of Government contributions, as a percentage of total program costs, regardless of which health plan enrollees elect," according to the Office of Personnel Management. The maximum government contribution is 75 percent, depending on the plan chosen.

Ryan’s proposal would change Medicare so that beneficiaries would get a so-called "premium-support payment” to help purchase private insurance, instead of being on the current fee-for-service system. In 2022, the average payment would be $8,000 for those age 65. The payment amount would increase based on the age of the recipient and the consumer price index for urban consumers, or CPI-U. But the "premium-support payments" wouldn’t keep pace with growing health care costs, according to the Congressional Budget Office, meaning that many Medicare beneficiaries would have to pay a larger percentage of their coverage as costs increase. CBO projected that under Ryan’s plan, the government would pay 39 percent of the cost of a private insurance plan in 2022 and 32 percent in 2030.

So, while the government’s contribution for insurance for members of Congress stays basically the same, proportionally, the contribution would actually decline over time for future Medicare beneficiaries. And the percentage the government would pay for seniors is also much lower than what the government pays for federal employees.