For those who want to read the highlights of the video, below is a transcript.
Rep. Roskam: Thank you, Mr. Chairman. Your report shows that Medicare will now be bankrupt in 2024. Americans would then be forced to either endure a massive tax hike or "an immediate 17-percent reduction in expenditures." In other words an immediate 17-percent Medicare cut. Can you explain what you mean by immediate?
Dr. Blahous: Well the way that the trust funds work, both on the Social Security side and on the Medicare HI side, is that the amount of expenditures the program can put out there is limited by what's in the trust funds. Now on the SMI (Supplemental Medical Insurance) side that's not really an issue because we just give the trust fund each year whatever is required to keep pace with costs. But once that trust fund runs out, the program lacks the authority to make benefit payments. Now there have been a lot of legal analyses that have been done of what happens when the trust fund runs out and they don't all agree, but a fairly common one is that payments would simply have to be suspended or delayed until the requisite financing came into the trust fund which would have the effect of reducing payments simply by virtue of delay.
Roskam: And that immediate is the common understanding of immediate, in other words, this present moment in time. In other words, when insolvency happens, then you immediately are prohibited based on the law and based on your understanding as a trustee from paying anything further out. And your estimation is that it would be a 17-percent benefit cut. Is that right?
Dr. Blahous: Well its 17 percent on average over 75 years, now it varies according to year. I think in 2024 specifically it's about 10 percent and that increases, then it becomes 25 percent by the 2040s.
Dr. Reischauer: What I think my colleague was describing is when the trust fund became insolvent, money would still be flowing in from tax receipts and Medicare would delay paying bills, and so a hospital would send this bill in and rather than being paid in 24 days, it might have to wait five months. The CMS and intermediaries and other payers would be writing out the checks and transferring the resources to the hospital, hospice, whatever, on a much delayed basis.
Roskam: So that cut just so I'm clear, is not a hypothetical cut, it's not a hypothetical delay, it's an actual delay in payment to the point of reaching this 17-percent number based on your own projection. Is that right?
Dr. Blahous: That's right. The Social Security Act which deals with these trust fund issues is very explicit that payments can only be made from the trust funds.
Roskam: So there's no other flexibility. If the revenues aren't there, if an insolvency is declared, you have no other remedy but to move forward and make those cuts. Is that right?
Dr. Blahous: Right. The programs don't have the authority to borrow in excess of the resources provided by the trust funds.
Roskam: And absent some change in the program your prediction is that is where our nation will be in 2024. That's right?
Dr. Blahous: That's right.
Dr. Reischauer: With respect to the hospital insurance system.
Roskam: I understand. So when the gentleman from Wisconsin said that there's a proposal that's out there by the Majority on this Committee that ends Medicare. In fact, Medicare as we know it will end in 2024, absent some change in policy or some change in moving forward. That's right isn't it?
Dr. Blahous: Yes.
Paul Ryan has the honesty to tell you what he thinks we need to do to save the program for more than the current generation of retirees. He as been accused of using scare tactics to pass his legislation. It's safe to say that the Medicare Trustees confirm his concerns. The bottom line is that doing nothing is not an option. In 2024, Medicare would end itself unless actions are taken to save the program. Those actions would be massive tax hikes or an immediate 17% reduction in expenditures.
Seniors have a choice. They can educate themselves about the Ryan Plan, which will preserve Medicare. The Ryan plan will only apply to those who are 55 & Under. I had a senior citizen tell me "don't touch my Medicare." She is 70. Democrats have done a good job of having people fear something that is false.
If you are over 55, nothing will change. You will enjoy the Medicare your currently have. If you're under 55, pick your poison. Support the Ryan plan. You will have insurance options that are similar to the Federal Employees insurance options. You will need to augment that coverage with your own money. Medicare Part D is a private managed care program that is very popular with seniors. Think about the Ryan Plan as an insurance version of the Part D program. You have to take a side in this debate because doing nothing is catastrophic.