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Medicare Outlook Improves

April 20, 2000

WASHINGTON (AP) _ The financial outlook for Medicare is a little better than the Clinton administration previously thought.

Medicare will now have until 2025 before cash runs short to pay benefits. A report issued March 30 by trustees of the program said Medicare would start running short on cash by 2023.

The two-year difference can be explained by a computational error recently discovered by trustees of Medicare, the health insurance program for the elderly and the disabled.

Treasury Secretary Lawrence Summers informed House Minority Leader Richard Gephardt, D-Mo., of the computational error in a letter Wednesday. ``We are investigating how best to correct the previously transmitted report and will forward the result to you when it becomes available,″ Summers wrote.

In a memo Summers forwarded to Gephardt, Richard Foster, chief actuary at the Department of Health and Human Services, explained: ``This error resulted in a substantial underestimate of future interest income and caused the estimated year of exhaustion for the (Medicare Hospital Insurance) trust fund to be shown as 2023, instead of the correct date of 2025.

``Actual earnings on (hospital insurance) assets were not affected, only our estimates of future interest,″ Foster wrote.

Foster, in the memo, said a more refined methodology for projecting future interest income was used for the March 30 report. But a programming mistake resulted in an erroneous projection of interest earnings.

``The estimated amounts of interest are understated by $2.1 billion in calendar year 2000 and by gradually increasing amounts through 2014,″ Foster wrote. ``The understatement increases substantially in 2015 and later to roughly $20 billion annually.″

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