Medicare may be insolvent by year 2019

Rising medical costs, shrinking revenue, drug benefits cited by trustees

41 million people are covered

Parties trade charges of blame

lawmakers get suggestions for solutions

March 24, 2004|By Cyril T. Zaneski | Cyril T. Zaneski,SUN STAFF

Soaring medical costs, shrinking payroll tax revenues and an expensive new prescription drug benefit will exhaust Medicare in 15 years unless lawmakers take steps to bolster the federal health insurance provider for more than 41 million Americans, the program's trustees reported yesterday.

Medicare's slide toward insolvency is accelerating, they warned. The program must start tapping its hospital trust fund to cover expenses later this year, and the fund itself will hit bottom in 2019 - seven years earlier than the trustees predicted only a year ago.

"What we're seeing is a big change in the financial condition of Medicare," said Robert Helms, resident scholar and health care specialist at the American Enterprise Institute. "I hope politics don't distract people from taking a serious look at this year's report because it's quite alarming."

Experts suggest that Americans might be forced to retire later to bolster tax revenues that will sag as the baby boom generation begins leaving the work force, wealthier retirees might get reduced Medicare benefits and Congress should start taking steps to trim the program's rocketing spending.

"The bottom line is that we have a Medicare program that has not been adequately funded for a long time," said Gail Wilensky, senior fellow at Project HOPE and former head of Medicare under President George H.W. Bush. "That was true and is continuing to be true."

Politicians rushed yesterday to put their mark on the report. Both parties focused on the Bush administration's controversial Medicare reform law, which adds a prescription drug benefit to Medicare in 2006 and expands the role of private health plans in administering the program. The drug benefit is expected to cost $534 billion over a decade.

The expected Democratic presidential nominee, Sen. John Kerry of Massachusetts, issued a statement blaming "George Bush's irresponsible tax breaks for the wealthy and his giveaway to the prescription drug companies" in the Medicare reform law he signed in December.

"If you are 50 years or younger, Medicare will be broke by the time you reach retirement," Kerry said. "In just one year, George Bush's reckless policies have sped Medicare seven years closer to bankruptcy."

The Bush administration countered, saying the costs of implementing the Medicare reform account for only two of the seven-year difference in the predicted solvency dates and sow seeds for fixing what ails the 39-year-old program.

"The reforms built into the new Medicare law often get overshadowed by the new prescription drug benefits, but these reforms provide more tools to use to improve the solvency of the program," Health and Human Services Secretary Tommy G. Thompson said.

He cited Medicare Modernization Act provisions that he said would reduce fraud and abuse, control hospital costs by improving preventative care for seniors, bring lower-priced generic drugs to market sooner and stimulate competition among private care providers to lower costs and provide more health care choices for seniors.

The annual report, which is prepared by Medicare's chief actuary and is required by law, reveals that HMOs participating in a program aimed at redirecting seniors to private insurance will receive $46.3 billion through 2013, not the $14 billion that Congress expected when it voted for the law last year.

"There's an ideological belief in the private-plan tooth fairy," said Ron Pollack of the nonpartisan health care advocacy group, Families USA. "This report is confirmation that the more seniors go into private plans, the more expensive it will be for Medicare.

"Efforts to push seniors out of the traditional Medicare program and into private plans may not only be harmful to seniors because they'll lose choices and because those plans are unreliable, but because those plans are also very costly for the American taxpayer."

The report was released into a politically charged atmosphere on Capitol Hill. Democrats and Republicans have been sparring over allegations that the White House had sought to prevent Medicare actuary Richard S. Foster from providing Congress with documents last fall that would have showed the proposed drug benefit would cost $139 billion more than lawmakers had been led to believe.

The trustees' report is based on Foster's work. The trustees are Thompson, Treasury Secretary John W. Snow, Labor Secretary Elaine L. Chao, Social Security Commissioner Jo Anne B. Barnhart and two public members appointed by the president and confirmed by the Senate - John Palmer, former dean of the Maxwell School of Citizenship and Public Affairs at Syracuse University, and Thomas Saving of Texas A&M's Private Enterprise Research Center.

In addition to Medicare, the report assessed Social Security, showing its financial health essentially unchanged from last year. It is expected to remain solvent until 2042.

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