Online NewsHour: The Medicare Issue

MEDICARE

Issue Backgrounder

Online NewsHour

NewsHour Backgrounders

June 5, 1996: Congressional Republicans and the Clinton administration debate ways to keep Medicare Part A from going bankrupt in the year 2001.
June 5, 1996: Elizabeth Farnsworth reports on the history of Medicare and its financial problems.
May 15, 1996: Florida is moving to eliminate Medicare fraud.
Oct. 19, 1995: In October 1995, the House voted to reduce Medicare spending by $270 billion over seven years.
Oct. 18, 1995: Robert MacNeil leads a discussion of Republican plans to reform the Medicare system.

Background
As a part of the Great Society social legislation of 1965, Lyndon Johnson proposed and later signed the legislation to create Medicare. Legally known as Title XVIII of the Social Security Act, the bill was enacted to ensure medical coverage for elderly Americans. Today, the system provides assistance for 33 million elderly and 4 million people with disabilities. In recent years the increasing number of older Americans and the skyrocketing price of medical services have led to a 10 percent annual growth rate in the program. Due to the phenomenal growth of the program in the past 15 years, the Medicare Part A section of the plan has nearly gone bankrupt on several occasions.
Here are some quick facts regarding the Medicare system:

Populations

Persons enrolled for Medicare coverage increased from 19.6 million in 1967 to a projected 37.6 million in 1995, a 93 percent increase.

Expenditures

Total HCFA program outlays were $57.9 billion in 1980, 9.8 percent of the Federal budget. By 1994, total HCFA program outlays were $226.8 billion, 15.5 percent of the Federal budget.
Medicare skilled nursing facility benefit payments have increased from $5.0 billion in 1993 to $7.1 billion in 1994, an increase of 56.8 percent.
Medicare home health agency benefit payments have grown significantly from $9.5 billion in FY 1993 to $12.0 billion in FY 1994, an increase of 26.3 percent.
Medicare hospice expenditures have grown significantly, from $958 million in FY 1993 to $1.4 billion in 1994, an increase of nearly 46.1 percent.

Utilization of Medicare and Medicaid services

Over 61 million persons are projected to receive services paid by Medicare or Medicaid in fiscal year 1995.

Nearly one out of five, or more than 12.0 million persons, will use inpatient hospital services covered by Medicare or Medicaid during 1995. The ratio of Medicare aged users of any type of covered service has grown from 367 per 1,000 enrolled in 1967 to 826 per 1,000 enrolled in 1993.

Nearly 71 percent of Medicare enrollees and Medicaid recipients, or about 49 million persons, are projected to receive reimbursable physician services during 1995.

About 32 million persons are projected to receive reimbursable outpatient hospital services under Medicare or Medicaid during 1995.

Medicare is actually a two part system. Part A covers the costs of hospitalization, nursing and home care. These costs are paid by a trust fund built up by employee payroll taxes. Part B of Medicare pays for doctor's bills and out-patient care. One quarter of Part B spending is covered by a monthly $42.50 premium paid by everyone enrolled in the program. The federal government's general revenues cover the rest of the programs costs.
Reform
Both Democrats and Republicans proposed changes to the Medicare system during the 104th Congress. Most of the debate has focused on attempts to keep Part A in the black. With a 10 percent annual increase in Medicare spending, efforts to reform the program streamed in to the new Congress. In an effort to pass a balanced budget and tax cut plan, House Republicans called for reducing spending in both sections of Medicare by $270 billion over a seven year period. Efforts to pass these cuts succeeded in the House but were heavily modified in the Senate and in the end, none of the proposed cuts were enacted into law.
The most substantive threat to status of the system came from the trustees of the Medicare Trust Fund. On June 5 of this year, they issued a report declaring that if nothing were done the Medicare system would go broke in the year 2001. Both Democrats and Republicans were quick to issue plans to save the troubled Part A. The Republicans proposed reducing the Part A spending by $123 billion to insure solvency. Although they did not detail how the savings would be achieved, they emphasized including more private sector choices, including managed care, and changing the rate at which Medicare recipients receive reimbursements.
President Clinton also released a plan to stabilize funding for the Part A plan. In it, the administration proposed cutting projected spending by $72 billion. He also announced plans to move one major section, the $51 billion spent on home health care, from Part A into the government general revenue fund.
Regardless of which plan is adopted, they will only keep the system solvent for an additional 5 years. Therefore, the next Congress may face similar pressures to reform this entitlement program.

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