At the Cato Institute, Michael F. Cannon blasts the idea of a “Medicare trust fund,” writing:

Everyone says Medicare is facing a “trust fund shortfall.” Not only is that a gross falsehood, the reality is much worse.

The very phrase “Medicare trust fund” is a pure falsehood. There is no such thing. That which the phrase describes contains no funds, nor should one trust anybody who pretends it does.

When people use the words “Medicare trust fund,” they are referring to something that is effectively a “Medicare spending authorization countdown clock.” Congress says Medicare can keep sending hospitals money, without further action from Congress, until (A) total historical Medicare expenditures on hospitals reach the same level as (B) total historical Medicare payroll tax collections. Right now, B is larger, yet A is rising faster. If A (spending) catches B (revenues), Medicare loses some of its authority to send money to hospitals. How much? About 11 percent of it. To restore that 11 percent, Congress could…just provide additional spending authority.

What people call “Medicare’s trust fund balance” is just the difference between A and B. When that “balance” is positive, it means B still exceeds A—i.e., there’s still time on the clock. When people talk about “Medicare’s looming trust fund insolvency,” they mean current trends suggest A will soon catch B—i.e., time is running out. When people talk about “Medicare’s insolvency date,” they mean the date on which officials forecast A will exceed B—i.e., time is up.

If that day arrives, Medicare’s fiscal outlook would improve, because its hospital spending would move just slightly in the direction of spending levels in other advanced nations. It tells us something about the politics of health reform that everyone acts like that’s a bad thing.

Read more here.