Yesterday’s finding by Medicare and Social Security trustees that more than 45 percent of Medicare expenses will soon come from general revenues automatically triggers a debate on Medicare reform.

President Bush next year must propose legislation reducing the general revenue share of Medicare costs, pursuant to a requirement in the 2003 law that created Medicare’s prescription drug benefit. That law requires the consideration of Medicare reforms if program trustees in two consecutive years determine general tax revenues will comprise 45 percent of all Medicare expenses within the next seven years. Trustees made a similar finding last year (dedicated payroll taxes and premiums from beneficiaries are the other two main sources of revenue). Under the 2003 law, Bush’s reform proposal must be submitted to Congress within 15 days of when he submits his next annual budget. Although the law provides expedited procedures for congressional consideration, lawmakers will not have to consider the plan, except for a possible floor vote to discharge it from committee.

Projected dates of insolvency for the Medicare and Social Security trust funds each slipped back one year, reflecting a slight financial improvement — with Medicare’s Hospital Insurance trust fund now expected to become insolvent in 2019 and the Social Security trust fund in 2041. Oklahoma’s Tom Coburn focused on an earlier date: when annual program spending will exceed non-interest income. “The public should also understand that the true bankruptcy dates for these programs — when promised benefits exceed tax income receipts — are this year for Medicare, and 2017 for Social Security,” he said. Coburn called the trust funds “an Enron-style accounting scheme” because they contain no real dollars, just Treasury IOU’s. When interest earned on the trust funds is considered, trustees say expenses won’t exceed income until 2011 for the Medicare trust fund and 2027 for Social Security’s trust fund.

Republicans and the White House used the reports’ release to call for entitlement reforms, arguing Democrats are ignoring the problem of growing entitlement costs. Noting proposals in Bush’s fiscal 2008 budget to reduce Medicare spending by $66 billion over five years, OMB Director Portman said if those plans were now in place, the trustees’ warning would not have been triggered. Democrats acknowledge the need to address the programs but said it must be done in a bipartisan way. Most observers doubt any action will be taken before the 2008 elections.

The non-partisan Concord Coalition and others said it is more important to focus on overall program costs rather than insolvency dates. Said Concord’s Robert Bixby, “Trust fund solvency also says nothing about how society will meet the growing fiscal burden reflected in these projections. Because the trust funds are primarily an accounting device for keeping track of the programs’ claims on general revenues, their existence does not ease the burden of paying future benefits.” And Robert Greenstein of the liberal Center on Budget and Policy Priorities said Medicare cost growth could be adequately addressed only by changes to the nation’s broader health care system. But, he said, Congress could achieve significant savings by adopting pending recommendations to reduce higher payments made to private insurers under the Medicare Advantage program — equalizing them with payments under Medicare’s regular program.