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The trust fund covers only half of Medicare: hospitalization insurance, known as Part A. It is financed by a payroll tax-currently 2.9%, split equally between employee and employer. Part B, for doctor bills, is voluntary, but such a good deal that nearly everyone eligible signs up. Beneficiaries pay a premium--currently $46.10 a month--but this covers only 29% of the cost. The rest comes from general funds. In all, Medicare covers 37 million Americans (33 million senior citizens and 4 million disabled people) at a projected cost this year of $181 billion.
So is there a crisis? The "trust fund" panic is just political stagecraft. But Medicare does need to be substantially overhauled, for two reasons.
The first is the total cost, which is rising at a pace that is unsustainable: 10% a year right now; even faster in 15 years or so when the baby-boom generation starts to reach retirement and decrepitude. There is simply no way that the current system can continue indefinitely. Although there is nothing magic about the years 1995 or 2002, the sooner reforms are made, the less drastic they will have to be.
The second reason for reform is that even now Medicare is too big a part of the federal budget to ignore. It is more than 10% of all federal spending, ranking behind only defense, Social Security and interest on the debt. If we want to balance the budget without a major tax increase, Medicare can not be sacrosanct. Moreover, it shouldn't be sacrosanct. Medicare is a program that takes money from working Americans--either through the special Medicare tax or through general taxes or through future payments on the national debt--and pays it to retirees. Many of these retirees are poorer than the average worker, but many are not. All are getting a far better deal from Medicare than today's workers will get when they retire, even if the inevitable reforms could be avoided, since current retirees were paying into the system during years when it cost far less.
Practically and morally, therefore, Medicare should take a large hit. There is no scientific answer to the question, How large? But the hit that the G.O.P. has in mind--which would reduce projected Medicare spending 23% in 2002, the year the budget is supposed to be balanced--is not unreasonable.
As the Republicans point out when anyone accuses them of courage in proposing such deep Medicare cuts, their proposal would still allow Medicare spending to rise; they merely want to slow the rate of growth, from 10% a year to 6.4%. American politicians of both parties love to declare a terrible crisis, then unveil a painless solution. But it is dishonest to suggest that slowing the growth of Medicare more than a third will not involve real cuts in benefits. Medicare is not projected to increase 10% a year because "Washington" is expanding the program. It is growing because the population is getting older. That means more people are entitled to benefits, and the average beneficiary, being older, has more health problems. It is growing because health-care costs in general are increasing. And it is growing because wonderful but expensive new weapons are constantly being added to the medical arsenal.