Medicare is an indispensable program that is providing health
security to the nation's senior citizens and their families.
Before Medicare, the private sector failed to provide affordable
quality health care to seniors. Only about half of individuals age 65
and older were able to afford private health insurance - and that
insurance was often limited or expensive. But with the
implementation of Medicare, virtually every senior citizen now has
access to affordable, quality health care. Medicare has helped to
expand the life expectancy of the elderly, improve the quality of their
lives, and keep millions of seniors and their families out of poverty.
Medicare's finances have grown worse since the Bush
Administration took office. When President Bush took office in
2001, the Medicare trustees projected 28 years of solvency for
Medicare's hospital insurance trust fund. Now, funds in the hospital
trust fund are projected to be exhausted in 15 years. The worsening
financial outlook for Medicare is due to lower than expected revenue
from payroll taxes and higher than expected costs. The Bush
Administration's ineffective efforts to stimulate the economy and its
support for overpaying private health plans in Medicare have
contributed to the trust fund problem. Moreover, the Bush
Administration's tax cuts, if made permanent, will make it more
difficult to ensure adequate financing for Medicare over the long
term.
Medicare's financial situation, while worse than last year, is still
relatively secure when compared to previous projections.
Almost since its inception, Medicare's hospital insurance trust fund
has faced a projected shortfall. Congress has always responded by
extending Medicare's solvency without undermining America's
promise to its senior citizens and individuals with disabilities. This
year's trustees' report should be kept in historical perspective: while
the report projects that the hospital insurance trust fund will be
exhausted in 2019, past trustees' reports have often projected the
trust fund would be depleted in ten years or less.
The trustees' report should not be used to push the conservative agenda to
privatize Medicare. Putting more people in HMOs and other private health plans will
actually increase Medicare spending, not reduce it. Private health plans cost more than
traditional Medicare because they cannot match Medicare's ability to negotiate lower
payment rates or Medicare's low administrative costs. According to the Congressional
Budget Office, the new Medicare reform law will increase Medicare spending by $14
billion over ten years in order to encourage private health plans to participate in
Medicare. If more beneficiaries switch to private plans, as the Bush Administration
predicts, the new law will increase Medicare spending by $46 billion over ten years.
The problem is not that Medicare is inefficient - it has actually done a better job
of containing health care costs than the private sector over the past 30 years.
The main drivers of higher Medicare spending are the same factors that are causing
overall health care spending to increase (e.g., advances in medical innovation).
Medicare has actually been more effective at containing health care costs than the
private sector. Since 1970, Medicare spending per beneficiary has averaged 9.6
percent a year, compared to 11.1 percent for private health insurers.
