When Medicare was created 30 years ago, penicillin was still considered a wonder drug, heart-bypass surgery hadn’t come into use, and the elderly were the most likely group in society to lack health insurance.
Today, families don’t have to worry about grandparents being unable to afford a hip replacement, cataract surgery or angioplasty to clear clogged arteries. Virtually all the elderly - 32 million people - are covered by Medicare. Another 4 million disabled people are also in the program.
But the soaring costs of high-tech, high-intensity medicine are threatening to drive the popular program into bankruptcy. And Medicare’s outdated and complicated structure denies government the management tools private employers have used to curb health spending by their workers.
At the same time, the Republican promise that Congress will pass a budget that eliminates the deficit in seven years has made the $176 billion-ayear program a prime target for cutbacks - especially since Social Security, defense and tax increases are off limits.
As the Senate and House budget committees prepare to begin work, independent experts are warning that Congress can’t have it both ways. According to health economists:
Reforming Medicare will be a timeconsuming process that could take years to produce significant savings.
Squeezing hundreds of billions of dollars out of the program in the next seven years probably isn’t possible without disrupting the lives of the elderly and the balance sheets of the health-care industry.
“What’s unfolding is an unrealistic set of expectations for Medicare,” said Marilyn Moon, a health economist at the Urban Institute think tank. “Medicare can certainly withstand some cuts and changes to save money, but when you start talking about $100 billion or more, it begins to be very tough to do it in such a short period.”
Former Medicare head Gail Wilensky - a Republican who argues that the program urgently needs to be overhauled - is also skeptical. “Everyone I know believes it will take a few years for any savings to occur,” she said. “I don’t think we could get up to $100 billion.”
Sources in the budget committees have floated figures of $250 billion to $300 billion in cuts from projected increases in Medicare spending over seven years. The built-in increases represent what it would cost the government to provide today’s level of service at tomorrow’s prices for a growing elderly population.
Republicans argue that these reductions aren’t really cuts, since overall Medicare spending will still rise, albeit at a slower pace. But neither the health-care industry nor the powerful lobbies representing the elderly are buying that. They’re worried the government will pay doctors and hospitals less, pass more on costs to beneficiaries or do both.
The elderly are already paying an average of $2,800 a year out of their own pockets for medical costs not covered by Medicare, and an unexpected cost shift by the government could provoke a political backlash.
“Medicare … is in jeopardy now because they’re trying to take so much of the hide off it to balance the budget,” said Abelicio Pena, a retired government manager from Grants, N.M. “I’m going to resist as much as I can.”
By 1990, Medicare’s trustees had been warning for over a decade that the giant hospital trust fund was headed for bankruptcy. Succeeding administrations and Congresses have kept pushing the date back a few years at a time. The fund, sustained by a 2.9 percent payroll tax evenly divided between employers and workers, is now expected to go broke in 2002.
Guy King, who was Medicare’s chief actuary for 15 years, says legislators are making a mistake by focusing on 2002. The truly scary problem will come after 2010, when the baby boom generation begins to retire.
“The insolvency (in 2002) is just the tip of the iceberg,” said King. “When you get into the middle of the next century, the hole just gets deeper.”
If present trends continue, the tax rate needed to support the hospital fund will triple by 2065, but by then, there will be half as many workers per Medicare beneficiary.
“We’ve got to figure out some way to reduce spending growth in Medicare,” said Wilensky. “(It) is truly unsustainable.”
Health-care inflation for society as a whole has eased in the last few years. It’s now rising at about 5 percent a year, compared with 9 percent in 1990. But Medicare spending is still surging ahead at about 11 percent a year.
Elderly people do use more health-care services than workingage people. But another reason for Medicare’s high costs could be the structure of the program itself.
Medicare works like a traditional insurance plan, allowing patients an open-ended choice of doctors and hospitals. Doctors are paid on a feefor-service basis, which encourages them to do more to earn more. Meanwhile, private insurance has turned to managed care, which narrows patient choice and monitors the services performed by doctors in an effort to control costs.
In the past, government has responded to Medicare’s budget problems by reducing payments to hospitals and doctors, passing more costs on to beneficiaries and broadening the tax base.
With the exception of tax hikes, all these options are on the table once more. The budget debate will see proposals to raise premiums for well-to-do retirees, increase copayments for some Medicare services and lower fees to hospitals and doctors. These changes, however, may only buy a few more years.
This year’s budget debate could lead to Medicare’s transformation, or it may just stave off bankruptcy temporarily. Other possibilities include budget gimmicks that postpone painful cuts while counting them as savings, or outright political stalemate.
MEMO: This sidebar appeared with the story: Medicare fraud President Clinton announced Wednesday a crackdown on Medicare and Medicaid fraud and waste. “People who rip this system off jeopardize the health of beneficiaries and the stability of our government and our economy,” Clinton told the 2,200 delegates at the formal opening of the White House Conference on Aging. “They are the only ones who will lose in this plan.” Clinton said the project, called “Operation Restore Trust,” would begin in the five states - New York, Florida, Illinois, Texas and California - that have nearly 40 percent of all Medicare and Medicaid recipients. The General Accounting Office estimates that fraud and abuse constitutes 10 percent of the combined $150 billion Medicare and Medicaid budgets in those five states.