John Goodman is absolutely correct. These are not his opinions. His comments can be verified by the GAO and The Treasury Department. The trust funds hold no cash. When the funds are depleted, what that means is that the numbers get to zero. His comment about Treasury IOUs creating an asset and liability are spot on. I was led to believe that only God can create something out of nothing! According to the debates leading up to the passage of Social Security, the payroll taxes could not go directly into the "trust fund." Rather, they had to be appropriated from the Treasury's general fund, just like other governmental expenses. The payroll taxes and the appropriation of those taxes were originally in the same Title, but had to be split into separate Titles. Otherwise, the government would have been in the insurance business, which would have been unconstitutional. Thus, the leveraging of the payroll taxes to help pay for defense, etc. Is that any way to run an insurer? You bet it isn't.

The trust fund headlines, and indeed, the cost of Medicare in general, are finally helping drive the solution that's been needed since these programs were created.

Medicare's cost increases mimic cost increases in the health care system as a whole. And where Medicare facing bankruptcy is what grabs the headline, those rising health care costs are actually causing bankruptcy for regular Americans. Medical debt is the number one cause of bankruptcy in this country.

The fix to both Medicare's bankruptcy and the bankruptcy of milliions of Americans is the same: Lower health care costs.

That is what President Obama's health care plan is designed to do - introduce a public health insurance option that competes with private insurance to lower costs for everyone, Medicare and the average American included.

That's the only way we can permanantly improve the outlook for the trust fund, and the outlook of the American people as a whole.

Updated at 10:24 a.m. on May 1.

From Drew Altman and Tricia Neuman of the Kaiser Family Foundation

Yes of course an insolvent Medicare trust fund would be a serious problem - if it were ever to happen. But Medicare is a hugely popular program, highly valued by seniors and the general public, and if the past predicts the future, policymakers will take action so the program will be able to fully fund benefits for the 45 million people who rely on the program for their health insurance, and future generations. As many will remember, back in 1997, the Trustees predicted the Medicare Part A Trust Fund would be insolvent by 2001, but Congress took steps to make sure that did not occur.

In the short-term, Medicare’s fate appears to be tied to that of health reform. The Obama Administration has linked health reform and Medicare discussions in what some have called a “grand bargain” in which we invest in health system reforms now with the hope of achieving savings for Medicare and other payers over the long-term. As reported by Robert Pear today, the Senate Finance Committee is considering some promising approaches in its health reform deliberations, hoping to reduce unnecessary hospital readmissions and improve the management of care for relatively high-cost Medicare beneficiaries. Carefully crafted, such efforts could be a win-win from the perspective of patients and the program.

In addition to broad health system reforms, Congress could consider a range of more targeted proposals, some more controversial than others, to slow the growth in Medicare spending and beef up the Trust Fund. First up could be reductions in payments to Medicare Advantage plans – an Obama Administration Budget proposal supported by key Congressional leaders that could add as much as two years to the life of the Trust Fund. While recent efforts to reduce payments to Medicare Advantage plans were blocked by the health insurance industry, some say the hand-writing is now on the wall. Still, the recent Medicare Advantage experience underscores the strength and savvy of Washington health care lobbyists, and raises questions as to whether Congress will want to take on hospitals and other health care providers to cut spending at a time when they are looking for friends in the health reform debate.

Whether or not Congress chooses to go down the path of reducing payments to providers, as it has done in the past, is not yet clear. What is clear from our polling is that most Americans are not interested in changes that could increase their out-of-pocket costs. Our most recent poll shows that proposals – such as raising payroll taxes, raising the age of eligibility for Medicare or requiring all seniors to pay a larger share of costs -- all received less than majority support, possibly because the public believes rising health care costs are taking a toll on seniors. Our own research shows that out-of-pocket spending on medical care is consuming a rising share of seniors’ incomes over time, even with Medicare. In the current economic climate, it seems hard to imagine a scenario that would ask the majority of seniors to pay more to buck up the Trust Fund.

As Washington grapples with questions about health delivery system reforms, and searches for savings to help offset costs of covering the uninsured, Medicare could be the stealth winner in this debate.

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I see no reason to worry - if Medicare continues eeking closer to engulfing the entire general revenue, eating up all the funds that we would like to use for national defense, education, welfare, transportation, etc., there is an easy solution:

Just keep eliminating the Medicare trigger, write more IOUs, and pay no attention!

Seriously though, Medicare's unfunded liabilities are more than $30 TRILLION dollars - there's no way we are ever going to pay for that, so why lose sleep over such an impossible task? As long as stakeholders have a kneejerk reaction of saying no to every Medicare reform that might help save the system (means testing, personal accounts, coverage limitations), there's no way Medicare's problems will be solved. In fact, see below: their solution continues to be "preserve the status quo, just raise taxes on everyone else."

I hope comprehensive health reform will entail serious entitlement reform, and that Congress will take this opportunity, and use this momentum, to enact meaningful Medicare reform, and make some of the tough calls that might upset some beneficiaries, but will lead to a more sustainable system overall.

The 2008 Medicare Trustees Report found that Hospital Trust Fund and the Supplementary Medical Insurance Trust Fund expenditures have outpaced the economy's overall growth. With the economic downturn, this will occur even more rapidly in the near-term. The solution to the spiraling costs of Medicare lies in addressing the growth in health care costs overall.

The Commonwealth Fund's Commission on a High Performance Health System has recommended that the federal government slow cost growth by better aligning payment with value across all payers; encouraging accessible, coordinated, accountable care delivery that is as effective and efficient as possible; and providing infrastructure investment in information systems and evidence-based research that can support performance improvement. For example, payers should move away from current fee-for-service payment methods to rewarding patient-centered medical homes and bundled payment for hospital acute care and follow-up care.

As I've noted in this space before, analysis of these policies shows that innovative payment and system reform policies will help slow the growth in total health care spending from 6.7 percent annual increases to 5.5 percent, yielding a cumulative $3 trillion in health system savings from 2010 through 2020 and spurring far-reaching change in the U.S. health system.

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There is no reason to worry about Medicare’s Trust Fund. Or the Social Security Trust Fund. Or the Highway Trust Fund. Or any other federal government trust fund ― with one or two exceptions.

The reason? These are not really trust funds. They do not collect or disperse money. They hold no real assets. They perform an accounting function (keeping track of the inflow of dedicated revenues and the outflow of funds to the programs they support), which occasionally forces Congress to act. But they perform no economic function (collecting, saving, investing, etc.). No money has been salted away in bank vaults. No securities were purchased on Wall Street.

The so-called assets of these funds are created on a computer keyboard. They really are IOUs the government writes to itself. But since every “asset” of a trust fund is a “liability” of the Treasury, summing over both parts of government (the Treasury plus the trust fund), assets minus liabilities net out to zero.

Occasionally people (for some reason, they are disproportionately on the left) will argue that the assets of these trust funds really can be used to pay benefits. Were that true, there would be an easy solution to our financial woes. President Obama, by Executive Order, could instruct the typists to double, triple or quadruple the number of IOUs the trust funds hold. After all, it is just as easy to hit the “2” key as the “1” key. A “4” is just as easy to punch as a “2.” But alas, you cannot increase wealth or purchasing power by writing IOUs to yourself.

So what should we worry about? Cash flow. In a pay-as-you-go system, like Medicare or Social Security, cash flow is the only thing that matters. And for as far as the eye can see, the inflow and outflow of cash look very bleak.

For some time, Social Security and Medicare combined have been paying out more than they are receiving in dedicated taxes and premiums. To cover that deficit, we have been drawing on the general revenues (mainly income taxes) of the federal government. By 2012, we will need 1 in 10 income tax dollars for this purpose. By 2020, 1 in 4. By 2030, 1 in 2. See details here.

Elderly entitlements are on a course to crowd out everything else the federal government is doing.

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The trustees report on the status of Medicare’s Hospital Insurance Trust Fund will show some deterioration from last year, mostly due to lower payroll receipts as a consequence of the economic downturn. I do not interpret this as requiring major cuts in Medicare, instead I see the trust fund situation as symptomatic of the need for reforms that promote greater efficiency and lessen the need for hospital based services among beneficiaries. I offer three observations to support this conclusion.

First, what’s happening in Medicare is also happening across all of healthcare. Revenues are down as fewer people have jobs, while expenses of caring for the sick continue to climb. This is a challenge for our entire health finance system, not just Medicare. Premiums for most employed persons and businesses continue to rise as a result. Medicare’s share of payroll contributions, however, has been steady for years. An economic rebound will help restore revenue, but we need to address needed health delivery reforms in any event. Such reforms should aim to have more patients treated by physicians in the community, and fewer in the hospital. Medical homes, accountable care organizations, and changes in physician reimbursement to reward value would all contribute to this goal.

Second, almost 20% of hospitalized Medicare patients today are rehospitalized within 30 days -- for most, an indication of poor follow up care. Adding a transition benefit to Medicare to ensure that hospitalized patients receive appropriate care as they transition back to the community is essential to lower this rate. Pilot programs have shown real success in keeping patients healthy and avoiding the very expensive need to reenter the hospital.

Likewise, we should also focus on keeping those with ambulatory care needs out of the hospital emergency room. If everyone had 24/7 access to appropriate and timely ambulatory medical services, we could greatly reduce emergency room visits and the hospital admissions that they often lead to.

Third, if medical technology continues to add expense to hospital services, we may need to contribute more to the Part A trust fund. However, a small increase in the rate of payroll contribution should be sufficient for several more years. Medicare enrollees already face a hospital deductible of over $1000 per admission, and charging them even more is not fair and does nothing to address the rise in health care costs. The payroll contribution at least spreads the risk among all workers, and does not just fall on the sick and those less able to afford it. Since it is deducted automatically from most paychecks, most could adapt to a small increase. But we should do our utmost to lower hospital admissions and hospital costs first, before resorting to any increase in the contribution rate. And while we have several more years before the condition of the trust fund will force action on funding, we should act this year to reform health care in order to improve health delivery and hold down costs. Doing so will strengthen the Medicare Hospital Insurance trust fund, but more importantly, it will improve care for those who need it.

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