Need for Medicare reform urgent, costly

The more formidable challenge: Fixing Medicare

Author: Robert Dodge, Pamela Yip

Published: February 4, 2005

At 78, Inez Boswell knows firsthand the life-saving benefits of Medicare.

"If it wasn't for Medicare, she wouldn't have gotten the bypass surgery," said her daughter, Barbara Parker, 58. "She wouldn't have gotten the medication, the quality of care she needed after she came home from the hospital."

But experts wonder how long those kinds of benefits can continue - for the 40 million who currently use America's universal health insurance program for retirees, like Ms. Boswell, and for the 77 million baby boomers who soon will start becoming eligible.

Even as the drumbeat quickens in Washington for an overhaul of Social Security, Medicare rolls toward a day of reckoning that will be far costlier, more personally painful and more politically challenging.

The issue is crystallized at Ms. Boswell's Richardson home, where she is cared for by a daughter, granddaughter and great-granddaughter. The generations confront their reliance on Medicare along with grave worries about its future.

Together, Social Security and Medicare have promised $33 trillion in unfunded benefits to seniors over the next 75 years. The vast majority of that staggering sum is from Medicare: Its promises outstrip its resources by $28 trillion over that period.

"It will be a serious problem sooner," said Gail Wilensky, Medicare administrator during the Clinton administration.

With the baby boomers beginning early retirement in 2008, analysts across a broad political spectrum agree that the nation cannot afford the Social Security and Medicare benefits promised to them and to future generations of seniors.

Forty years ago, creating a health insurance program for the elderly seemed like a natural complement to the founding of Social Security and its old-age pensions a generation earlier.

Now, Medicare is headed for the critical list faster than Social Security, because health care costs are soaring at double-digit rates.

Those expenses are so large that they threaten to erase all of the gains that seniors could otherwise expect from an improving economy.

"There will be a stagnation in their standard of living," predicted Rudolph Penner, an analyst at the liberal Urban Institute.

At this point, the government's response is a familiar one when faced with unappetizing policy choices: It's putting this issue aside till later.

Future burden

Ms. Boswell's history shows how Medicare has put state-of-the-art medical treatments within the reach of millions of Americans. It also reflects the scope of the program's future cost burdens.

In addition to her quadruple bypass surgery, the great-grandmother takes drugs for high blood pressure and cholesterol. She also had a stroke. Medicare paid part of the bill for her cataract surgery, too.

None of those treatments existed when Ms. Boswell was born. The medical industry spent a lot of money developing them, and the costs ultimately are passed along to consumers and taxpayers.

And yet for all of the costs that Medicare has picked up, Ms. Boswell's medical expenses still mount - and the Medicare money only goes so far.

"She has a lot of bills that have not been taken care of," said her granddaughter, Sonya Rice, 38. "The bills have just kind of been sitting there for a while until we can figure out what to do."

The family uses Ms. Boswell's Social Security and pension benefits to pay for health care. They save about $300 a month by persuading doctors to give them free pharmaceutical samples.

"She gets $54 in food stamps, but of course, that is not enough," Ms. Parker said. "She has doctors' bills out the wazoo."

Seniors caught in the web of multiple medical bills should see some relief next year when Medicare's new benefit for prescription drugs goes into effect.

But that same prescription drug benefit perfectly illustrates the conflict between current Medicare users, who will receive more benefits, and future ones, who are likely to receive less because of it.

Crushing imbalance

According to a recent report by the Congressional Budget Office, Medicare is growing at about 8.5 percent annually, nearly doubling 2004's economic growth rate of 4.4 percent.

The pressure will mount beginning next year, thanks to the drug benefit. The budget office predicted the new benefit will cost $45 billion in 2006 and then expand dramatically, costing $1 trillion over the next decade.

Last year, the Medicare trust fund that pays for hospital expenses began to pay out more in benefits than it receives in revenue. Ms. Wilensky predicts that between 2010 and 2015, Medicare will begin to place crushing burdens on the federal Treasury.

"It really becomes critical when the baby boomers begin to retire," said John Goodman, president of the National Center for Policy Analysis, a conservative Dallas think tank. "That is when the finances become very dire, and they do so very quickly."

The impact on federal spending will be huge, according to an analysis by the think tank based on data from the Medicare trustees report and assuming constant annual increases in health care costs.

By 2030, spending on Medicare and Social Security would be nearly equal to 30 percent of the government's income tax receipts.

Of course, Social Security is funded by a separate payroll tax, not income taxes. But the think tank's analysis offers some perspective on just how large the government's Medicare and Social Security bills will be.

"It will not take long. The deficits will show up very quickly in the budget," said Thomas Saving, a Medicare trustee and director of the Private Enterprise Research Center at Texas A&M University.

Joseph Antos, a health care expert at the free-market American Enterprise Institute, said the projections for Medicare are not wild, long-term guesses by eyeshade-wearing bean counters.

"There is little uncertainty about what is going to happen over the next five years. The trend is pretty set," Mr. Antos said.

Why Social Security?

So, if Medicare is the bigger and more pressing problem, why are President Bush and Congress talking about Social Security?

For one thing, Social Security is easier to deal with, even though solutions like cutting benefits and adding private investment accounts are generating heated debate. Medicare is a complicated health delivery system, and solutions to taming runaway health costs remain elusive.

In fact, some experts worry that a future president and Congress will delay action even as these costs start to mount in the next decade, sending the Treasury to borrow the money. There is concern that strategy eventually would lead to a crisis if foreign investors become uncomfortable with the size of the nation's debt.

The eventual Medicare showdown is likely to make today's all-out political rumble over Social Security look like a schoolyard squabble.

"No matter what they do, it will be terribly painful," said Robert Moffit, director of health policy studies at the conservative Heritage Foundation. "Taxpayers will get hit and get hit very hard. The Bush tax cuts will be in danger."

For one, today's workers will be asked to save more and pay more for their care when they retire. And the contentious debate over the prescription drug bill, which contained modest free-market reforms, gave a glimpse of things to come.

Some experts said Medicare should be overhauled, eliminating its separate parts for hospitals, doctors and the drug benefit. They said it should be replaced with a system that is more like the managed care programs used by corporations.

Such proposals are expected to draw fierce opposition from liberal Democrats who want Medicare and Social Security to remain government programs. They are concerned about guaranteeing defined benefits and protecting seniors from the uncertainties of personal savings and investment.

Some hear death knell

Young people like Ms. Boswell's great-granddaughter, 18-year-old Rayanna Rice, are tuning in. Many wonder if the programs that provided care for their grandparents and parents will still be around when they retire.

"I think Medicare is not going to be around for me," she said. "That's why I've decided to make plans to invest on my own, because I can do my own retirement and be set for life."

Experts said Rayanna's generation will indeed have to save more - and pay more taxes.

But Rayanna has set limits on how much she's willing to sacrifice, reflecting expectations that will shape the difficult debate ahead.

"For my parents, if there is a chance that they will have Medicare and that we can increase taxes, and that won't affect my lifestyle, I would certainly be willing to do that," she said. "If I can still send my kids to college, if I can live comfortably, I'm OK with it."