Big Changes to Medicare on the Horizon

Knight Ridder Newspapers

(KRT)

WASHINGTON - Medicare experts have two messages for people worried about the future of the government's health insurance program for the elderly.

First: Don't panic.

Though technically due to run short of funds in 15 years, the program is too popular for Congress to let that happen. Lawmakers will keep the program running by some combination of raising taxes, borrowing money or cutting payments to hospitals. But these fixes would only buy time.

So, second: Expect changes.

In the long run, the U.S. health care system can't escape major, possibly wrenching, reform. Access to the most expensive treatments and drugs could be curbed. Advances in medical technology could slow, affecting health care not just for retirees but for everyone.

"Right now, we want it all. We want whatever advances technology can provide, whatever the cost," said Robert Reischauer, the vice chairman of the Medicare Payment Advisory Commission, which advises Congress on Medicare issues.

New drugs and treatments are driving up health care spending so fast that it threatens to overwhelm the federal budget and the economy. The breaking point could come with the retirement of the baby boomers, those born between 1946 and 1964. They will swell the ranks of the nation's elderly, driving up health spending. Americans will have to decide whether health care should consume an ever-increasing share of the nation's economic resources.

"The growth of Medicare, Medicaid and health care spending ... is the central domestic policy challenge of our time," said Douglas Holtz-Eakin, the director of the Congressional Budget Office, which projects the cost of federal programs. Medicaid pays for health care for the poor.

A new report this week showed that Medicare's own health is in rapid decline.

Medicare taxes won't cover the program's hospital costs this year, forcing Medicare to dip into the interest earnings on its $251 billion trust fund, according to an annual report from the Medicare Board of Trustees.

The deficit is projected to grow annually, exhausting the trust fund entirely by 2019. At that point, Medicare taxes will cover only 91 percent of projected costs, said Richard Foster, Medicare's chief actuary.

Worse, for now, the government has already borrowed and spent the money in the trust fund, and will have to tax or borrow from elsewhere to pay it back to Medicare in the years ahead.

As the 2019 witching date approaches, lawmakers will find some way to patch the hole, as they did when a similar crisis loomed in 1997. Then they slowed the annual increases in payments to hospitals and doctors. They also moved some expenses into another part of Medicare that's funded out of general revenues.

"Medicare's not going to go bankrupt," said Michael Chernew, a University of Michigan health economist who served on a panel that reviewed Medicare's long-term projections in 2000.

But such changes "only delay the date of reckoning," he said, "because the underlying factors driving up Medicare cost growth are unlikely to change."

Those factors are medical advances that lead to costlier treatments and drugs, and the aging of society.

The number of Medicare beneficiaries is projected to double in the next 30 years, from 42 million today to 84 million in 2035. Medical advances also enable people to live longer, contributing to a larger elderly population.

"Unlike most tidal waves, this tidal wave will never recede," said David Walker, the head of the government's General Accounting Office. "It is a permanent change in the demographic profile of our country."

Health care spending is growing faster than the economy overall, so every year it accounts for a larger proportion of the economy.

Medicare spending is projected to reach 5 percent of the gross domestic product, the broadest measure of the U.S. economy's size, by 2020 and 10 percent by 2050. Last year, it accounted for 2.6 percent of GDP.

Medicare currently is funded with a dedicated 2.9 percent payroll tax plus additional revenues from the general budget.

"Tax contributions, either through payroll taxes or other taxes, will go up," said Joseph Antos, a Medicare expert at the conservative American Enterprise Institute in Washington.

Also likely are increases in co-payments for Medicare beneficiaries and in the $66.60 monthly premium they pay for doctor visits and other nonhospital care.

But Americans may decide they don't want to spend that much money on health care.

More for health care means relatively fewer dollars to fight future wars, and spend on highways, education and other areas crucial to economic growth, not to mention food on the table or bigger television sets and fancier cars.

For companies, higher health insurance costs drive up labor costs, making it harder to hire employees.

Americans have stubbornly resisted limits to spending when it comes to their health, as the experience of health maintenance organizations in the 1990s showed. The HMOs tried to make money by limiting available services, and patients rebelled.

"People in this country are not keen on anything that steps between them and any new technology that comes," said Gail Wilensky, who headed the Medicare and Medicaid programs in the first Bush administration.

As wealth grows, society can, in principle, spend a higher proportion of resources on health care without cutting back on other spending.

But at some point the cost of saving a life or improving health may just seem too steep and some form of rationing could be on the way. Expensive treatment could be limited based on stricter definitions of need. Patients might have to wait for treatment the way they do in countries that control health care costs more strictly.

"I think we as a nation are going to muddle along, gradually trying to restructure our health care system in ways that are unpredictable right now," Reischauer said.

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(c) 2004, Knight Ridder/Tribune Information Services.

(C) 2004 Knight Ridder/Tribune News Service.. All Rights Reserved