Medicare in a Fiscal Crisis Congress Cannot Ignore

Medicare in a Fiscal Crisis Congress Cannot Ignore

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Medicare is in serious financial trouble. Spending is growing faster than Medicare’s revenue, and there is no end in sight. This year, Medicare is expected to spend $568 billion. In ten years, spending will reach almost $1 trillion. According to the Congressional Budget Office, the hospital insurance trust fund will run out of money by 2020. That’s 9 years sooner than CBO’s projection last year, and that dismal news will likely be backed up by the 2011 Trustees report expected in the next month or so. 
Medicare is too important to allow it to fail. It can be saved, but only if politicians take the difficult actions that are needed.

The budget resolution that will soon be adopted by the House of Representatives is likely to include a call for Medicare reform. The key to that reform is premium support, which can restore fiscal health to the program by promoting more efficient and effective health care for America’s seniors.

The premium support concept has long been recognized as a prudent approach to financing health and retirement programs. It is a new way of structuring the financing of Medicare benefits that gives beneficiaries more control over their health choices and spending. Medicare beneficiaries would be granted an annual subsidy that reflects the costs associated with their health status and their financial wherewithal. This premium support arrangement would reverse the incentives now in Medicare that promote wasteful spending.

Those who believe that Medicare can continue on without substantial reform are fooling themselves, and not just on April Fools’ Day.  Traditional Medicare is a mirage that cannot remain as it is today as program costs continue to spiral out of control and 40 million baby boomers nearly double the size of the program. 
Premium support does not mean the end of Medicare.  Premium support accepts the fact that resources available to Medicare are not limitless, and it provides beneficiaries with realistic and sustainable health plan options.  It also is a wake-up call to the health industry to provide more efficient and effective care if plans expect to operate successfully in a world of resource constraints. 

Medicare’s fiscal problems are no longer something for future generations to worry about.  The problems are immediate, and left uncorrected will threaten the benefits that younger baby boomers in their 40s and 50s can expect to receive.

Experts from around the country have asked congressional leaders to take the country’s fiscal problems seriously, particularly those facing Medicare.  Instead of politics as usual leading to recrimination-filled gridlock, the public deserves a careful and honest debate on how best to save Medicare.  Most Americans realize that we have a crisis, and they expect responsible action from Washington. 

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute

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