It is common knowledge that Medicare faces a grim
financial future. Government officials have projected that by 2019, there will
be insufficient funds in the
Medicare Part A Hospital Insurance Trust Fund to pay for
current services and benefits without any additional revenue. Federal spending
for fiscal year 2010 totaled $3.5 trillion, and Medicare accounted for $524
billion (15%) of the total amount. The percentage of spending will continue to
increase without major reforms.
Medicare funding is dependent on the number of people
working and paying their payroll taxes. According to the Kaiser Family
Foundation, payroll taxes account for 85% of Part A revenues, while general
revenues fund 74% of Part B and 82% of Part D. The number of people working and
paying taxes will decrease from 4.0 per beneficiary in 2000 to 2.3 per
beneficiary in 2030. At the same time, it is estimated that Medicare
beneficiaries will double from 40 million to 80 million. Not only will there be
more beneficiaries, but new health care reform initiatives will also have
mandates for additional medical services and equipment coverage.
Strong public sentiment
Currently, Medicare provides health care coverage to 47
million people – 39 million people age 65 years and older and 8 million
younger adults with permanent disabilities. There is strong public sentiment
against cutting Medicare benefits as many seniors believe they have earned a
promised lifetime of medical care after retirement.
However, the reality is that Medicare has finite
resources and major funding issues need to be resolved. The relatively new
prescription drug program is not close to being adequately funded. In addition,
new coverage, such as mental health, pediatric dental and vision care,
rehabilitation therapy and wellness services, are not yet fully defined.
Long-term care will become a greater funding issue
because Medicare is currently not structured to pay for it nor dental, vision
and hearing care. As our population ages, Medicare reforms need to address the
increasing numbers of beneficiaries and costs for new and innovative treatments
Highest spenders for health care
The U.S. government’s share of health care
expenditures was 20% in 1960 and approximately 50% in 2007. The new health care
reform package will continue to increase the government’s share and will
exceed the private sector’s share in time.
As we implement expanding coverage for the U.S.
population, we need to be aware of one big difference between the United
States. and countries with national health insurance: We are, by far, the
biggest spenders of health care. Based on per capita spending or as a share of
the gross domestic product, we spend anywhere from 50% more than the next
highest spender and up to 200% more than many other countries. Countries with
national health care coverage are also currently facing major funding problems.
If they spent as much as the United States did per capita to support their
health costs, their economies would buckle from the needed taxation and their
people would demonstrate in the streets as they are experiencing in the United
Kingdom due to entitlement cuts.
Where are the projected savings?
Much of the projected savings under the
Patient Protection and Affordable Care Act were based to a
large degree on Medicare payment reductions to doctors, hospitals and other
health care providers. The annual report from the Medicare Board of Trustees
caused Richard Foster, Medicare’s chief actuary, to comment that Medicare
payment rates for doctors and hospitals serving seniors will be cut by 30%
during the next 3 years. The implementation of those drastic reimbursement cuts
has been delayed until after the 2012 election.
In addition, we have not heard much about the new
Medicare Independent Payment Advisory Board established by
President Obama’s health care reform. It is tasked with limiting spending
on Medicare and its decisions can become effective without any congressional
action. For the first time, an unelected group will be empowered to limit
health care spending and it can only be overridden by new legislation. One
variable in reimbursement reductions are the courts will not allow
government-funded programs to restrict access to proven treatments. In the
future, we will see constant debates by politicians and bureaucrats on cost and
comparative effectiveness, quality of life and proven outcomes for medical
The 2012 election is critical to start addressing the
75% of the budget that is non-discretionary and entitlement based. We are
investing heavily in our elderly population with these entitlements for
Medicare, Medicaid and Social Security at the expense of the younger
generations. Politicians have carefully avoided any meaningful discussion of
these problems. Only now has one proposal been brought forward with significant
reform proposals. Hopefully, it will start and generate meaningful debate. In
the past, politicians who have tried to address or change the issue have paid a
price politically. We are running out of time. We must hold our politicians
more accountable. They use their personal political survival traits to speak
differently to different stakeholders.
For example, President Obama is delaying the impact of
some of his political realities from the unpopular parts of his reform package.
Health and Human Services unexpectedly set Medicare rates for 2012 with a per
capita Medicare Advantage payment increase of 1.6% on average. Many seniors
favor Medicare Advantage, and its enrollment has increased 6%. It is similar to
the private insurance many seniors had during their working life. It is the
type of insurance then presidential candidate Obama said he would not change
and at the same time, he also planned to eliminate the Medicare Advantage
program. It appears the White House is evading blame from the seniors for
deleting this program for those who like their current coverage.
I encourage you to be involved in the development of the
ideas and debate leading up to the selection of the 2012 candidates. As both
physicians and citizens, we need to ask the key questions about the future of
Medicare entitlements in the United States. Ask your candidates about what
basic coverage they believe all beneficiaries should have, and how they propose
making Medicare self-sufficient. You can also ask how your candidate proposes
limiting the overutilization of health care services and what types of
rationing of care he or she believes will be necessary. You should learn how
your candidate plans to sustain and fund the Medicare drug benefit.
Current Medicare funding was designed for a different
time — when life expectancies were shorter and the benefits were less
expensive. If left unchecked, the projected financial short falls will have a
devastating impact on our overall economy and will forward a staggering debt to
- Douglas W. Jackson, MD, is chief medical editor of
Orthopedics Today. He can be reached at Orthopedics
Today, 6900 Grove Road, Thorofare, NJ 08086; email: