Restoring Medicare's Fiscal Health for Future Generations
WASHINGTON, MARCH 27, 2008 -- Medicare is rapidly approaching a fiscal breakdown, according to the 2008 Medicare Trustees Report, which was released on Tuesday. Why aren't Americans more concerned about this impending crisis? What can policymakers do to make Medicare sustainable for successive generations?
A panel of experts met yesterday at AEI to discuss these issues. The conference was held as part of the Institute's ongoing work on Medicare reform, spearheaded by Joseph Antos and Robert B. Helms. Richard Foster, Medicare's chief actuary, presented this year's findings.
The Trustees announced that Medicare's Hospital Insurance (HI) Trust Fund will become insolvent in 2019, a few months earlier than reported last year. Foster noted that the HI Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund expenditures are growing faster than the economy due to the increasing number of beneficiaries and the greater use of health care services. Foster stressed the burden the baby boomers will put on the program when they retire. "Right now there are almost four workers paying payroll taxes into the trust fund for every one beneficiary who's drawing benefits, but by the time the baby boomers have fully retired in 2030 that ratio will be down to about 2.4 to one," he said.
Antos, a former official at the Congressional Budget Office and the Centers for Medicare and Medicaid Services, suggested that Medicare's fiscal crisis does not preoccupy public concern as much as the mortgage meltdown. But while the collapse of the subprime mortgage market will bring estimated losses of $1 trillion, in the long run, Medicare's shortfall will reach $85 trillion. "The average person has difficulty imagining how the Medicare crisis would affect him or her; the trust fund numbers are just numbers," he said. "They don't concretely convey what would happen to them or their grandchildren in terms of lost opportunities, worse health care, or a reduced standard of living."
Antos pointed out that the concept of Medicare "trust funds" gives a misleading sense of confidence to the public. Balances in the trust funds are not sitting in a bank waiting to bail out the program. Instead, they are lent to finance the ongoing operations of government, leaving Medicare with no funds of its own in lean years. "The bonds merely represent the obligation of the government to free up some money from one of those real financing methods--but the bonds are not an actual source of that cash," he said.
President Bush recently sent Congress proposals to promote value-based health care, reform medical liability, and "income-relate"--that is, means-test--Part D premiums. Antos stated that each of those ideas is a sound health reform, but they do not directly address the real problem facing Medicare: out-of-control spending. He argued for competitive reforms that would level the playing field for all health plans (including traditional Medicare) as a way of promoting greater efficiency and slowing growth in program spending.
Gail Wilensky, a former Medicare administrator, stressed the need to reform the fee-for-service model and better align financial incentives. In addition to supporting means-tested Medicare premiums and bundled payments in place of paying for each individual medical service, she recommended that the eligibility age (currently sixty-five) should rise but that those with significant health needs at younger ages be given earlier access. Wilensky also stressed the need to align information on the comparative effectiveness of medical treatments with financial incentives to reduce program spending, an issue of growing importance. "We need to have much better information available on what works . . . when provided by whom under what circumstances," she said.
Robert Bixby of the Concord Coalition and the Fiscal Wake-Up Tour, stressed the need for public engagement in the issue. "The dire projection going forward [is] not a numbers issue, it's really a moral issue because if you're leaving a mess to future generations--a debt-burden legacy--that's not a very good commentary on our fiscal stewardship," he added.
--KRISTY HAWLEY
For video, audio, and more information about this conference, visit www.aei.org/event1697/.
AEI's Joseph Antos and Robert B. Helms research the policy challenges facing Medicare and edit AEI Studies on Medicare Reform. Prior volumes include The Diagnosis and Treatment of Medicare, by Andrew J. Rettenmaier and Thomas Saving. The next book in the series will be Markets Without Magic: How Competition Might Save Medicare, by Mark V. Pauly.
For more information about AEI's Health Policy Studies program, visit www.aei.org/health/ or contact Kristy Hawley at kristy.hawley@aei.org or 202.862.5920.
For media inquiries, contact Véronique Rodman at vrodman@aei.org or 202.862.4870.
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