MEDICARE MANIA

March 1999
		How should the federal government reform Medicare before it becomes unaffordable? Answering your questions are Karen Davis, president of the Commonwealth Fund; Robert Reischauer, a senior fellow at the Brookings Institution; and Stuart Butler, vice president for domestic and economic policy studies at the Heritage Foundation.

The pros and cons of Sen. Breaux's plan. Should the age of eligibility be raised? Would prescription drugs be covered? Federal Employee Health Benefits and Medicare Predicting Medicare's future. Medicare and the budget surplus.     February 25, 1999: Reforming Medicare. The NewsHour's Health Spotlight. Browse the NewsHour's coverage of Medicare The National Bipartisan Commission on the Future of Medicare The Heritage Foundation The Commonwealth Fund supports health issue research The Brookings Institution.	Scott Swigart of Portland, OR asks: When I hear that medicare will be insolvent in 20 years, I think "How can they possibly do an accurate forcast for that far in the future?" Robert Reischauer of the Brookings Institution responds: The Medicare Actuaries, the Office and Management and Budget, and the Congressional Budget Office all make long run projections of the Hospital Insurance (HI) Trust Fund. The Actuaries expect the trust fund to be insolvent in 2008 while the other two agencies expect the date of insolvency to arrive sometime between 2012 and 2015. Such projections are subject to a great deal of uncertainty. The major source of uncertainty is the pace at which per capita HI costs will grow in the future. During some periods, the annual rate of growth has been close to 10 percent; at other times it has been less than 5 percent. Projections of the tax revenue flowing into the trust fund are subject to less variation and are easier to predict as are the numbers of beneficiaries. While there is a good deal of uncertainty about the exact year of insolvency, it is quite clear that under any plausible set of assumptions about the course of the economy and the growth of health care costs, the HI trust fund will run out of money some time between 2005 and 2017. The retirement of the baby boom generation will require further policy changes. Stuart Butler of the Heritage Foundation responds: You're right that it's impossible to make an accurate forecast 20 years into the future. But that doesn't mean we can't say that the trend is very clear - and very alarming. We don't know to the week exactly when our kids will outgrow their shoes, but we know it's going to happen and we had better plan for it. Similarly, we don't know exactly when Medicare will become insolvent. But government accountants know that a huge number of baby boomers will be eligible for Medicare starting about 10 years from now, driving up costs. And they know that their will be relatively fewer workers paying earmarked taxes into Medicare. So insolvency may be 15 years away, or maybe 25 years away, but it's coming, and coming in a big way. That means the sooner we figure out ways of dealing with this "financial hurricane" the better we will be able to withstand it. The government's own accountants say the problem with the President's plan is that all he proposes to do is pour more taxpayer dollars into the program - and promise even more benefits - rather than suggest ways of getting the program onto an even keel for our children when they retire. Proposals like Senator Breaux's, on the other hand, try to make Medicare function more efficiently so that the financing gap is smaller. Karen Davis of the Commonwealth Fund responds: Future projections of Medicare outlays are very uncertain. Among the factors that can affect future estimates are: · Biomedical research could lead to breakthroughs in preventing or treating conditions that are very costly to Medicare, including cancer, heart disease, Alzheimer's disease, and Parkinson's disease · Trends in disability; disability declined by 1.3 percent a year between 1982 and 1994; it is uncertain whether this will continue · Health habits are changing; tomorrow's elderly will be better educated, less likely to smoke, and more physically and mentally active. · The health care industry is in the midst of a major transformation, similar to the corporate downsizing and improved efficiency of American industry in the 1980s and 1990s. Care is being shifted out of the hospital and excess capacity is beginning to shrink. · Economic projections are also uncertain. We have experienced strong real economic growth in the last 3 years, between 3 and 4 percent. Most projections assume economic growth in the future between 1 and 2 percent. Future projections on governmental expenditures as a percent of the total economy are very sensitive to economic growth assumptions. Robert Friedland of the National Academy on an Aging Society (Demography is Not Destiny, NAAS, January 1999) points out that governmental expenditures as a percent of Gross Domestic Product (GDP) will be 61 percent in 2030 assuming 1 percent economic growth but 32 percent assuming 3 percent economic growth.