Tom is a decorated war veteran of World War II. Nine years ago, when he was 66 years of age, he had a heart transplant. Medicare covered the transplant and paid for the first year of medications.  Neither his supplementary insurance nor Medicare covered any of the medications after the first year. He has struggled to pay for the medications since then and is now no longer able to pay for them.  Tom feels he served his country and wants to know -- why isn’t it taking care of him?

Medicare provides health insurance to 39 million elderly and, in 1999, cost the government $213 billion, or 12 percent of the federal budget.  What are the challenges facing Medicare’s future?

The Medicare population is growing --by 2030 it is expected to nearly double to 76 million Americans. Medicare is already the third largest government program, and its spending as a percentage of the federal budget has doubled in just twenty years. The number of senior citizens in the United States is increasing steadily, and advances in medical technology are keeping them alive longer and longer. As a result, there is growing concern about the cost of financing care for future generations.

The challenges to Medicare are long-term. With the decline in the number of workers paying into the system through their payroll taxes, many experts believe we will need to find additional sources of funding for Medicare in the future. Possible approaches include new taxes on products like tobacco, or greater contributions from the nation's wealthier seniors.

“In fact, the most successful part of the American health care system is Medicare.  And Medicare, which is a single payer, government financed health care system -- what Canada has essentially is Medicare for everyone -- but this is a government financed, single payer system for people over 65 and it's the most popular part of our health care system now.”  -- Marcia Angell, MD, Editor-in-Chief, The New England Journal of Medicine

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“Sometimes we do share drugs because I can't get the samples or it's just too costly, but my husband Val has gone as long as a month without medication”­ Dottie Maretto

Val, a retired truck driver, has diabetes.  His wife Dottie has high blood pressure.  They can’t afford their medications and often take less than the full dose or just go without.  They don’t want charity but do feel there should be some sort of subsidy for people like themselves in the middle-class.

The cost of prescription drugs most frequently used by seniors rose more than four times the 1998 rate of inflation, and yet one third of America’s Medicare beneficiaries lack prescription drug coverage. 

The security of prescription drug coverage significantly affects whether or not the elderly ­ or anyone -- take their medication as prescribed.  For the past several years, out-of-pocket spending on prescription drugs has been rising.  New research and development in the pharmaceutical industry has led to advances in drugs that treat conditions commonly afflicting the elderly, and direct-to-consumer marketing has driven up prescription drug demand. 

In 1999, Medicare beneficiaries spent approximately $400 out-of-pocket on drugs, and many expect this number to rise.  But those seniors who can't afford to pay for their medications often don't fill necessary prescriptions, or they take their medicine irregularly.  The consequences can be dangerous, or even deadly.  “Original” Medicare does not cover the cost of prescription drugs outside the hospital, which means that more than a third of Medicare beneficiaries lack coverage for outpatient prescription drugs.  That number is expected to grow as private sources of coverage get more expensive.  This coverage gap becomes more of a hardship as drugs grow more expensive and more important in treating the ills of old age.  But some seniors have some drug coverage under other plans, including Medicare HMOs.  HMOs and other forms of managed care are often able to negotiate lower prices for drugs from the manufacturers, but people paying for their medications as individuals cannot take advantage of these discounted rates.  Logically, people who do not have drug coverage are less likely to fill the prescriptions their doctors give them, and less likely to take medication that could improve their health and prevent more serious effects of chronic diseases.

Drugs still account for only 7 percent of all U.S. medical spending, a figure that is expected to reach 8 percent in 2003. Though the amount spent on drugs may seem small, it is expected to increase dramatically in the coming years. America is the only industrialized nation with a free market for pharmaceuticals, or without government restraints on drug prices. In 1998, there was a record number of new drug launches, and the industry spent $1.3 billion on direct-to-consumer advertising ­ four times the 1994 amount.

When Medicare was enacted in 1965 as the healthcare linchpin of President Lyndon Johnson's Great Society, its proponents saw this insurance plan for the elderly as a step towards the goal of universal coverage. That goal has yet to be achieved, but Medicare now insures 39 million Americans and is the nation's single largest source of payment for medical care. Since Congress established Medicare, its benefits have remained largely unchanged, with the exception of a few additional preventative services. Some 151 million employees make mandatory contributions to Medicare's Part A Hospital Insurance Trust Fund, which finances inpatient hospital services, continued treatment or rehabilitation in a skilled nursing facility, and hospice care for the terminally ill. All eligible beneficiaries are automatically enrolled in Part A. Medicare Part B is supplemental medical insurance, modeled after traditional indemnity coverage. Enrollment in Part B is voluntary and pays for physicians' services and outpatient services, including ambulatory surgery and diagnostic tests. Under Part B, Medicare pays 80 percent of the approved amount (according to a fee schedule) in excess of a $100 annual deductible.

“First of all, we absolutely have to improve the Medicare benefit package.  We have to add a prescription drug benefit.  We have to do something about catastrophic out-of-pocket expenses.”

-- Bruce Vladeck, PhD, Director, Institute for Medicare Practice, Mount Sinai School of Medicine

More on Bruce Vladeck’s interview

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WHAT TO DO?

In order to maintain Medicare for future generations, we will need to increase the funds available, while at the same time reduce the growth in Medicare spending, possibly by increasing cost-sharing.

Private options for affordable drug coverage include requiring insurers to cover drugs or allowing pharmacies to buy drugs at the same low price paid by federal agencies.  Public options include expanding Medicare to include drug coverage, or targeting benefits for those with catastrophic drug expenses.

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