Medicare, Medicaid challenge looming

Fixing Social Security woes will seem easy in comparison with health insurance programs

February 13, 2005|By Michael Hill | Michael Hill,SUN STAFF

While everyone is talking about what to do with Social Security, there's a far-larger fiscal iceberg floating dead-ahead that is getting little attention - possibly because no one knows what to do about it.

The bill for Medicare and Medicaid - the government's health insurance programs for seniors and the poor - is expected to far surpass the cost of Social Security in coming decades as they take on a surge of aging baby boomers in an era of skyrocketing health care expense.

"Medicare obviously faces the same demographic challenges that Social Security does, but the extent of the spending problem is substantially worse," says Ken Thorpe, chairman of the department of health policy and management at Emory University's School of Public Health.

Consider this year's report by the trustees of the trust funds of Social Security and Medicare. "Medicare's financial difficulties come sooner - and are much more severe - than those confronting Social Security," it says. "While both programs face essentially the same demographic challenge, health care costs per enrollee are projected to rise faster than the wages per worker. ...

"As a result, while Medicare's annual costs are currently 2.7 percent of GDP, or about 60 percent of Social Security's, they are now projected to surpass Social Security expenditures in 2024 and reach almost 14 percent of GDP in 2078, more than twice the percent for Social Security in that year."

Add in Medicare expenses that are paid out of general revenue, and the percentage of gross domestic product (the output of goods and services) rises to 20 percent in 2078. Thorpe says that Social Security will account for only 3 percent of GDP then. "It's just an order of magnitude different in terms of a spending problem," he says of Medicare's projected money problems.

So why aren't people in Washington doing anything more than wringing their hands while watching things like the projections of the cost of the new prescription drug benefit rise?

"It's a lot more attractive to take on a program like Social Security with a plan to give a ton of money to Wall Street that wants it," says Rick Mayes of the department of political science at the University of Richmond. "There's not a huge political payoff to taking on Medicare, almost none, because any reform is going to be resented by somebody.

"But if you had to choose between the two, which one needs financial fixing first, it would be Medicare hands down," he says.


Just as Social Security was the legacy of President Franklin D. Roosevelt's New Deal, Medicare - celebrating its 40th birthday - is the legacy of President Lyndon B. Johnson's Great Society. And, while both programs have come under extensive criticism for the burden they impose on the federal budget, both have done what they were supposed to do.

Judith Stein, executive director of the Center for Medicare Advocacy, says that when Medicare came into existence, about 50 percent of people older than of 65 had no health insurance. Now, studies show, 96 percent are signed up for both parts of Medicare coverage - hospitals and doctors.

"It has dramatically increased the amount of coverage available to the elder population and in doing that, decreased poverty, both for elders and for their families," Stein says, noting studies that show poverty among the elderly declining from 29 percent in 1965 to 10.5 percent in 1995.

Medicare has similarities and differences with Social Security. Its Part A - which covers hospitalization and similar costs - is paid for out of a trust fund similar to Social Security's, financed by payroll taxes matched by employers. As with Social Security, the trust fund is projected to run out - the latest trustee report projects it will be exhausted in 2019, seven years sooner than the previous year's projection.

Doctors and other outpatient costs are covered under Part B of Medicare which, like Medicaid - the government's health insurance program for the poor of any age - is paid for out of general revenue funds. The law requires Medicare recipients to pay a premium covering 25 percent of those costs, a cost that has been rising rapidly in recent years. General funds also will be the source of money for prescription drug benefits when that comes on line.

As with Social Security, which has about 1 percent in administrative costs, Medicare can boast of its bureaucratic efficiency, using only 2 percent of its dollars for administration, far below the 12 percent to 16 percent costs of private plans.

What worries Medicare advocates is that cries of crisis in the plan will result in privatization schemes similar to those being suggested for Social Security. The 2003 Medicare Modernization Act that introduced drug benefits moved in that direction.

`Faith-based approach'

"It's a faith-based approach to health insurance," Stein says. "I say that because experience shows that these managed-care plans did not save Medicare a nickel."

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