HealthBeat FYI: Tough Rx: possible ways to fix Medicare

June 26, 2007

Ripped from the pages of today's paper...

In Sunday's Los Angeles Times, personal finance columnist Kathy Kristof reported on the problems facing Medicare.  In it, she cited a recent NCPA study by Senior Fellows Andrew Rettenmaier and Thomas Saving.  Below are excerpts:

Tough trade-offs will be the topic early next year when Congress takes up Medicare reform.

The nation's cornerstone health program for the elderly would normally be a taboo subject in an election year. But lawmakers have no choice.

Why? When a drug benefit was added to Medicare in 2003 without an increase in revenue, Congress placed in the law a provision for a reform process that would be triggered if the system's finances became dire enough.

For the second year in a row, Medicare's finances hit the trigger point.

That forces President Bush to present a reform plan shortly after delivering his annual budget in February. The law also demands that Congress start considering the reform measure within three weeks of receiving it.

"This puts Medicare on the radar," said Andrew J. Rettenmaier, executive associate director at the Private Enterprise Research Center at Texas A&M University in College Station, Texas.

What's wrong with Medicare? The program has an unfunded liability six times that of the Social Security system and is catapulting down an unsustainable spending path, said Thomas R. Saving, a Medicare trustee and senior fellow with the National Center for Policy Analysis, which just completed a study on the system's woes.

And the problems will get increasingly dire each year.

"As more and more baby boomers reach retirement, the cash-flow deficits will begin to snowball," Saving said.

Let patients drive

Rettenmaier at Texas A&M says one of the problems with health spending - both in Medicare and private industry - is that consumers are impervious to the costs when somebody else is paying the tab. The presumption is that consumers would be more cautious about getting cost-effective treatment if they have economic incentives to do so. That's got some experts calling for "vouchers" that Medicare recipients could use or save.

There are a couple of catches. One is that it's difficult, if not impossible, to compare the cost and effectiveness of medical services because there are no published prices or statistics.

The other is the possibility that you could run out of vouchers. Freese notes that this is one way of rationing care, an idea that has been kicked around for decades. But rationing often sounds better in theory than in practice.

Raise taxes

Many experts believe that some boost in tax rates will be necessary. But if the entire cost is paid this way, the price would be huge, Rettenmaier said.

The National Center for Policy Analysis study found that we could get the system back in balance by boosting federal taxes - excluding the Medicare and Social Security payroll taxes - by 10% by 2020. Or we could nearly double the Medicare payroll tax to 5.4% in the same time frame.

But the longer we wait, the bigger the tax increase that will be required.

Read the NCPA Study Medicare: Past, Present and Future:

http://www.ncpa.org/pub/st/st299/

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