Who are Medicare's true friends? - Republican budget plan keeps Medicare solvent - Editorial

Nation's Business, Sept, 1995

Under Congress' seven-year plan for achieving federal budget balance, spending for Medicare will total $1.6 trillion, an increase of more than 30 percent in the current spending rate.

Medicare Hospital Insurance: An Imminent Fiscal Crisis

(Dollar Amounts In Billions)

Year   Income   Outlays   Surplus Or   Reserves
                          Deficit (-)  Available
1994   $109.6   $104.5       $5.0       $132.8
1995    117.4    113.9        3.5        136.3
1996    124.1    125.0       -0.9        135.4
1997    129.3    135.6       -6.3        129.2
1998    134.6    146.5       -11.9       117.3
1999    139.4    158.2        -18.8       98.4
2000    144.5    170.8       -26.3        72.1
2001    149.7    184.5       -34.8        37.4
2002    154.9    199.0       -44.1         0
2003    160.4    214.7       -54.3         0
2004    166.3    231.4      -65.1          0

The present annual budget for Medicare is $178 billion, and expenditures for 2002 are projected at $274 billion. Average annual spending per beneficiary will go from $4,800 to $6,700. Overall, Medicare will remain the fastest-growing federal program.

In the face of those numbers, the American Association of Retired Persons, a lobbying organization with 35 million members, asserts that the GOP plan means "massive cuts" in Medicare. "Reductions of this magnitude are too large and too fast," said an AARP official.

Some members of Congress echo the AARP line. Sen. Edward M. Kennedy, D-Mass., who has fought the Republicans' balanced-budget initiative, says that "these cuts are so deep that they will devastate not only our seniors but our health-care system as a whole."

Those and similar attacks on GOP proposals for dealing with Medicare all stem from a deliberate refusal to accept the realities of the financial status of this program 30 years after it was launched.

Critics are focusing on the fact that the GOP plan seeks to narrow the gap between annual cost increases of Medicare and private health insurance--10.4 and 4.4 percent, respectively.

By curbing the explosive growth of Medicare spending, the GOP plan would save some $270 billion over the next seven years.

That sum, not large against anticipated outlays of $1.6 trillion, represents the difference between the program's continuing solvency and collapse.

At current expenditure levels, the payroll taxes that finance the hospital-insurance component of Medicare, called Part A, will drop below costs next year, and reserves to finance deficits will run out six years after that. The cost of Part B, which is financed by enrollees' premiums and direct federal appropriations and which covers physicians' fees and other medical services beyond inpatient hospital care, has gone up more than 50 percent over the past five years alone. Even sharper increases are expected over the short term unless corrective measures are taken.

And those problems will get worse early in the next century as the beneficiary population swells with the arrival of the baby-boom generation in the ranks of the retired.

That analysis was not drawn by Republicans seeking support for a balanced budget or any other legislative initiative; it was drawn by the boards of trustees for the two Medicare programs, boards that include three members of President Clinton's Cabinet and his appointee as Social Security commissioner.

Organizations like AARP and Democratic members of Congress complaining about Medicare "cuts" need to realize that the real problem is the inability of the U.S. economy and individual taxpayers to sustain the growth rate that Medicare has been allowed to achieve.

Ironically, those arguing for maintaining the rate at current or just slightly reduced levels are willing, for the sake of short-term political or organizational goals, to condemn Medicare to bankruptcy. Those favoring meaningful reforms believe such steps are necessary to preserve, protect, and strengthen the system to assure that it continues to fulfill the goals for which it was created.

The savings will not be achieved through arbitrary cutbacks in medical care for the elderly but through such steps as allowing beneficiaries to choose the health-care options that best suit their needs. Specifics of such changes will be developed in coming months.

Current beneficiaries and the taxpayers who are future beneficiaries should recognize that Medicare's true friends are those supporting responsible change, not those who would keep it on the road to insolvency.