Retirement Insights -- Medicare: Ensuring Its Survival

Everybody says they want to save Medicare, but will the reforms being considered weaken or strengthen our health care safety net?

Medicare is facing a long-range financial problem. Steady growth in the elderly population and in the cost of health care have driven up the cost of the Medicare program, which is expected to run out of funds within the next two decades if the problem isn’t addressed.

Medicare is the nation’s health insurance program for the elderly and disabled just as Social Security is income insurance. Medicare covers 39 million, or one in seven, Americans.

Medicare Part A covers hospital inpatient care. It is financed by payroll taxes, and there are no premiums for beneficiaries. Part B covers physician services and outpatient care; the government pays 75 percent, and beneficiaries’ premiums cover the remaining 25 percent.

Since 1965, Medicare has made physician and hospital care much more accessible for the elderly.

It is an extremely efficient program operating at an overhead of 1.8 percent of benefits paid.

THE GRAYING OF AMERICA. Current projections show Medicare’s Hospital Insurance Trust Fund will run short of money in 2015.

The influx of the Baby Boomers will put a strain on the system — beneficiaries are expected to nearly double to 76 million in the next 30 years.

The number of Medicare beneficiaries over 85 — a group with high medical expenses — also is expected to double by the year 2030.

PROPOSALS. A bipartisan commission named by Congress and President Clinton to come up with short- and long-term solutions for Medicare disbanded after a year of debate without reaching agreement. The buck was passed to Congress, which will debate controversial reforms over the next few months as it considers how to address Medicare’s future crunch. Among the proposals:

• Raising the eligibility age from 65 to 67.
• Increasing seniors’ copayments for services under the traditional Medicare plan.
• Changing Medicare from guaranteed benefits to a defined contribution plan — creating incentives for more seniors to join managed care plans.
• Making further cuts in reimbursement rates to medical service providers.

Opponents to raising the eligibility age are concerned that it will leave retirees aged 65 to 67 without health insurance. They also feel it will not save much money. Medicare beneficiaries between 65 to 67 are generally the healthiest in the system and cost Medicare relatively little.

COPAYMENTS. The recommendations increasing seniors’ copayments for services focus on the belief that beneficiaries should take more responsibility for their own health care. Opponents note that beneficiaries already pay 25 percent of Part B premiums and are subject to a $100 annual deductible. They must also come up with a $764 deductible for each episode of hospital inpatient care.

That is already quite a bite from Social Security checks.

PREMIUM SUPPORT. One proposal that has already received some congressional support would remove the current guarantee of benefits and replace it with “vouchers.” This option — modeled on the federal employees’ health plan — would provide beneficiaries with a certain amount of money they could use toward premiums for a Medicare-approved plan. If the plan they wanted cost more than the voucher, the beneficiary would pay the difference. This would shift responsibility from the government onto the beneficiary.

Opponents of this proposal are especially concerned that the government share of premiums would be capped at a percentage of the average cost of all approved plans — most likely lower than the cost of traditional Medicare or the better private plans. Those in the traditional Medicare plan (85 percent of all beneficiaries) would have to pay higher premiums or be forced into the lowest-cost managed care.

CHEAP CARE. A number of Medicare changes in recent years have cut back on payments to hospitals, doctors and other health care providers. Opponents of these cuts are concerned that they will turn physicians away from treating Medicare patients.

The debate over Medicare’s future is just getting started. More proposals will be made in the weeks and months ahead. Meanwhile, one proposal that seems to have a broad base of support, including AFSCME’s, is President Clinton’s recommendation to reserve 15 percent of the federal budget surplus for Medicare. It won’t solve the entire problem, but it will get the ball rolling.

By Susan Ellen Holleran

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