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Retirees can expect to receive $3 in Medicare benefits for every $1 they paid in Medicare taxes. Retirees can expect to receive $3 in Medicare benefits for every $1 they paid in Medicare taxes.

Retirees can expect to receive $3 in Medicare benefits for every $1 they paid in Medicare taxes.

Tom Kertscher
By Tom Kertscher June 5, 2014

Paul Ryan says Medicare going broke

Generally speaking, 7.65 percent of your paycheck is withheld for FICA -- 6.2 percent for Social Security and 1.45 percent for Medicare.

If your annual pay is $46,000, the average for full-time-working Americans, the Medicare portion of those Federal Insurance Contributions Act taxes approaches $700 per year.

It’s not enough, according to U.S. House Budget Committee chairman Paul Ryan.

Not that the Wisconsin Republican is angling for a tax increase.

Ryan’s point, made at a event on May 5, 2014, is that Medicare must be reformed because it is "going broke. The trust fund goes bankrupt in 2026."

We've long heard that the nation’s largest health insurance program faces future trouble as health care expenditures continue to rise and the Baby Boom generation continues to gray.

Indeed, retirees can expect to receive $3 in Medicare benefits for every $1 they paid in Medicare taxes.

But is the program really headed for the rocks?

Medicare primer

Medicare, which pays for medical care for senior citizens, as well as for younger people with certain disabilities, covers 51 million people. At a cost approaching $500 billion per year, it accounts for about 14 percent of all federal outlays -- third behind defense spending and Social Security.

Medicare has two main components:

Part A -- Hospital Insurance. Helps pay for hospital, home health following hospital stays, skilled nursing facilities and hospice care. Most people pay no premiums.

The primary source of financing for Part A is the FICA payroll withholding. In other words, it’s pay-as-you-go: the contributions of current workers (and their employers) finance the care for current beneficiaries.

If revenue exceeds expenditures in a given year, the extra money goes into the Part A trust fund. And when expenditures are higher, the trust fund gets tapped.

Part B -- Supplementary Medical Insurance. Helps pay for physician, outpatient hospital, home health and other services. Medicare recipients can opt for these benefits and they pay premiums.

Most of the costs for Part B are covered by the government’s general fund and, to a lesser extent, premiums paid by beneficiaries.

Part B also has a trust fund. But it’s different from Part A in that whenever expenditures exceed revenue, the difference is automatically covered by transfers from the general fund. So, as structured, it can’t go broke, though it could draw an increasing amount from the general fund.

There is also a Part C -- Medicare Advantage, which is a private-insurance alternative to Part A and has no trust fund. And there is Part D, a prescription drug benefit included in Part B.

Regarding Ryan’s claim, we’re concerned only with Parts A and Part B.

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Ryan’s evidence

Ryan advocates reforming Medicare into a "premium support" program in which retirees, starting in 2024, would get money to pay toward the cost of traditional Medicare or competing private plans.

To back his claim about Medicare’s financial condition, Ryan cited four excerpts from the latest annual report of the Medicare trustees, published in May 2013. The excerpts address the trust fund for Part A, which is a common way -- albeit an incomplete one -- of measuring Medicare’s overall financial health.

One excerpt says: "Payment of expenditures in full and on time will continue to require redemption of trust fund assets most years until the (Part A) trust fund’s depletion in 2026."

In other words, it's projected that in 2026, not only will expenditures exceed revenues for Part A (hospital care), but the trust fund available to cover the difference -- $220 billion, according to the report -- will be zero.

So, what to make of Ryan's characterization of Medicare going broke or bankrupt?

More to consider

The trustees’ report concludes that "Congress and the executive branch must work closely together with a sense of urgency to address the depletion" of the Part A trust fund and the projected growth in expenditures throughout the Medicare program.

But PolitiFact, and the Washington Post Fact Checker have all rated claims similar Ryan’s (including some previously made by Ryan) and have all concluded that saying Medicare is going bankrupt goes too far.

PolitiFact Ohio, for example, rated as False a 2012 claim by singer Pat Boone, a spokesman for the conservative 60 Plus Association, that Medicare would be bankrupt in nine years.

Some key points:

  • Since 1970, five years after President Lyndon B. Johnson signed Medicare into law, there have repeatedly been projections of the Part A trust fund running out of money. Over the years, Congress repeatedly changed legislation to lower spending to keep the fund from going dry.

  • Even if the Part A (hospitals) trust fund ran out, the report Ryan cites projects that revenue would still be enough to pay 87 percent of the Part A expenses. Not a good situation, perhaps, but also not Medicare being bankrupt or shutting down.

  • The projected depletion of the Part A trust fund in 2026 is nine years later than what the Medicare trustees projected in 2009, the year before the adoption of the Affordable Care Act, according to Medicare expert Paul Van de Water of the liberal-leaning Center on Budget and Policy Priorities.

Gail Wilensky, former head of Medicare under President George H.W. Bush, agreed that Part B is not projected to run out of money and that Part A would continue operating, though providing fewer benefits, even if it’s trust fund becomes depleted.

But she said that Ryan’s claim underscores the overall point that Medicare’s current structure is not financially viable.

Our rating

Ryan said: Medicare is "going broke. The trust fund goes bankrupt in 2026."

The trust fund for Medicare Part A (primarily hospitals) is projected to be exhausted in 2026, but that doesn’t mean the program would be bankrupt or stop operating.

Part A would continue to receive revenue and continue to operate, albeit at a reduced level, if Congress doesn’t make any changes in Medicare -- even though, since 1970, Congress has always made changes to keep the trust fund solvent. Meanwhile, there is no projection that the other parts of Medicare will run out of money.

For a statement that contains an element of truth, but ignores critical facts that would give a different impression, we give Ryan a Mostly False.

Our Sources, U.S. Rep. Paul Ryan breakfast (12:40), May 5, 2014

Email interview and interview, U.S. Rep. Paul Ryan spokesman Kevin Seifert, May 30, 2014

Medicare board of trustrees, 2013 annual report, May 31, 2013

PolitiFact Ohio, "Pat Boone claims Medicare will be bankrupt in nine years," (False) March 29, 2012

Washington Post Fact Checker, "A bipartisan foul: ‘Medicare is going broke,’" Sept. 21, 2012, "Ryan’s muddy Medicare claims," April 19, 2011

Center on Budget and Policy Priorities, "Medicare is not ‘bankrupt,’" June 3, 2013

PolitiFact National, "Medicare vs. Medicare Advantage: Making sense of the political ads," April 9, 2014

Interview, Project HOPE senior fellow and former head of Medicare and Medicaid under President George H.W. Bush Gail Wilensky, June 2, 2014

Kaiser Family Foundation, "A primer on Medicare financing," Jan. 31, 2011

Peter G. Peterson Foundation, "Budget explainer: Medicare," April 10, 2014

National Institute for Health Care Management, "Government spending for health entitlement programs," June 2012

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