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Bipartisan Commission on the Future of Medicare
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Public Statements
December 22, 1998
OP-ED
"MEDICARES FINANCIAL CRISIS"
By: CONGRESSMAN BILL THOMAS, R-CA
Co-Chair, National Bipartisan Commission on the Future of Medicare
Medicares financial crisis may have moved off the front pages, but it has not
gone away. Last year Congress faced the fact that the Medicare "trust fund" that
pays for hospital care was going to run out of money in 2002. By reducing what Medicare
pays hospitals and making bookkeeping changes, Congress extended the life of the fund for
another 6 years.
These measures were only a temporary and limited fix. Medicares looming financial
problems go far beyond the year 2008 and get much worse. They involve not only hospital
care but outpatient and doctors services as well.
To develop long-range and comprehensive solutions, Congress established the National
Bipartisan Commission on the Future of Medicare. I am co-chairman of this 17-member
Commission. We were instructed to recommend ways to put Medicare on solid and secure
financial footing. The Commission is closely examining the major issues: the costs,
benefits, eligibility, financing, administration, and basic structure of Medicare. The
Commission will make its recommendations to the Congress and the President next March.
Polls show that most Americans may not be aware of the crisis in Medicare financing. An
important part of the Commissions role is to inform Americans that the crisis is
real, even if it is not front-page news.
From the very beginning, Medicare has been financed on a pay-as-you-go basis. Benefits
are funded by the taxes of working people as they are paid. The Medicare trust fund that
pays hospital bills is not really a trust fund. It is actually an accounting device to
reflect the governments receipt and expenditure of payroll taxes. Over a few years a
slight surplus was built up in the fund. But even in its fattest years, the accumulated
surplus was enough to pay only a little more than one year of Medicares bills for
hospital care.
Medicare payments for hospital care are projected to be greater than the payroll taxes
collected for that purpose for the foreseeable future. The slight reserve that had
accumulated will be used up, and in 2008 the trust fund will be broke. Medicare cannot, as
a matter of law, spend any money for hospital care except what it receives from taxes
collected on each workers paycheck. On its current course, Medicare will fall behind
in paying for hospital care, hospitals will be put in financial jeopardy, and our senior
citizens will not get the hospital care they expect.
And the problem gets worse every year. If Medicare is not successfully reformed, it is
projected that the shortfall for hospital care in 2010 will be $40 billion. In 2030 it
will be $914 billion. It may be hard to believe, so it is worth emphasizing: these figures
are the deficit in each year and are based on the more optimistic of the two
estimates the Commission is using. The accumulated deficit, of course, is the enormous sum
of these annual deficits. On Medicares current course, the accumulated deficit, just
for hospital care, would be more than $7 trillion in the year 2030.
And this is for hospital care only. Medicare pays doctors bill out of current
income tax revenues (75 percent) and beneficiaries premiums (25 percent). The cost
of paying for doctors care under Medicare is increasing at an even faster rate than
spending for hospital care.
Medicare spending for all kinds of care now represents 2.7% of the countrys Gross
Domestic Product. On its current course, it will be between 6.3 and 8.5% in
2030consuming approximately three times as much of national wealth as it does now.
This is particularly daunting because the ratio of workers to beneficiaries will drop from
4-to-1 to 2-to-1 during this period.
Medicare was created more than 30 years ago. Since then the health care world and the
demographics of our people have changed dramatically. In order to survive in this new
environment, Medicares structure must be modernized.
If Medicare is not fundamentally and successfully reformed, the country will confront
four choices: limiting promised benefits; reducing spending on other government programs;
raising taxes; or returning to deficit spending. Lets look at what each of these
options would mean.
As it is, Medicare now covers only about half of seniors health care needs. It
does not cover prescription drugs (except for drugs given to hospitalized patients and in
some other circumstances) or nursing home care (except for limited post-hospitalization
periods). While cuts in payments to doctors and hospitals do not appear on the surface to
be a cut in benefits, they can be. If the cuts are too deep, they would reduce the ability
of elderly patients to get the care they need.
The second option is to reduce federal spending in other areas and transfer the money
to Medicare to cover the increases in Medicare expenditures. But the budget cuts in
defense, justice, health and safety, the environment and the other activities of
government would have to be truly draconian to cover these increased costs.
Or there is the option of raising taxes. It should be understood what this course would
mean. We estimate that to fully fund hospital care, the payroll tax rate working people
pay to support hospital care for Medicare beneficiaries by the year 2030 would be between
two and three times what it is now. On top of this, to fully fund doctors care on
the present basis, income tax rates would have to be increased dramatically.
If none of these actions is taken, the country would by default return to massive
budget deficits and new borrowing. This would raise the governments interest costs
dramatically, curtail other governmental activities, and dampen the general economy (which
would in turn make all the problems worse, require more borrowing, and start a new vicious
downward cycle).
Clearly, we cannot allow these to be the only choices. We must make the changes
necessary to avoid them. The Commission will develop suggestions for modernizing and
saving Medicare. These will give beneficiaries more control and more choice, and make
Medicare more efficient. This has the greatest likelihood of putting the program on a
secure financial footing. Only if we are successful, will we avoid the unpalatable choices
we have discussed. We can do no less.
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