Medicare's fiscal crisis and options for reform

Article Highlights

  • Medicare is not financially sustainable without reform

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  • Premium support is the key to making Medicare sustainable

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  • Bipartisan agreement on Medicare reform can be reached to avoid the dire consequences of inaction

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Joseph Antos' analysis of Medicare's fiscal crisis and reform options; a response to a request from 16 health professionals elected to the U.S. Senate and House of Representatives. 

Medicare's fiscal crisis and options for reform

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April 30, 2012

Dear Dr. Gingrey:

I am pleased to respond to your request, along with 15 of your colleagues in the House and Senate, for comments on the financial sustainability of Medicare and specific reforms that should be pursued to save the program.  The attached report provides my analysis of Medicare's financing challenges and bipartisan reform proposals.  My own recommendations for Medicare reform based on premium support are also discussed.

My analysis draws the following conclusions:

1.  Medicare is not financially sustainable without reform.

  • Medicare is facing a fiscal crisis that threatens the health security of older Americans. According to the 2012 Medicare trustees report, the Hospital Insurance trust fund will be depleted in 2024. The program faces $27 trillion in unfunded liabilities over the next 75 years, measured on a present value basis.
  • The Affordable Care Act reduced Medicare spending by $850 billion over the next decade, but that money was used to finance new programs. As a result the budget is in worse shape than it was before.

 

2.  Premium support is the key to making Medicare sustainable.

  • Recent bipartisan proposals rely on premium support to change the incentives that have driven Medicare spending. Market competition and consumer choice can help Medicare provide high-quality coverage at a cost that beneficiaries and taxpayers can afford.
  • Other reforms are also necessary to modernize Medicare, make the program fairer, and reduce unnecessary spending. Simplifying the confusing structure of deductibles and copayments, providing additional support to low-income beneficiaries, and correcting defects in the way Medicare pays for services (including a permanent fix for the sustainable growth rate that limits physician payments) lead the list of needed changes.
  • If we expect traditional Medicare to compete in the open market, it must be given more authority to innovate. At present, the program is unable to respond swiftly to changes in medical science and the business of health care.
3.  Bipartisan agreement can be reached to avoid the dire consequences of inaction.
  • The challenges posed by Medicare's financial crisis transcend party lines. Reforming Medicare is essential if we are to slow the growth of health spending and reduce the rising burden of federal debt.
  • Recent bipartisan reform proposals reflect the growing consensus that the danger is real but solutions are possible.

Additional information on Medicare's financial crisis and the necessary reforms to save the program for future generations is contained in the report. 

Thank you for the opportunity to present my views on Medicare reform.  Please let me know if I can be of further assistance.

 

Sincerely,

Joseph Antos

Wilson H. Taylor Scholar in Health Care and Retirement Policy

 

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About the Author

 

Joseph
Antos
  • Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI), where his research focuses on the economics of health policy — including the Affordable Care Act, Medicare, the uninsured, and the overall reform of the health care system and its financing. He also studies the impact of health care expenditures on federal budget policy.

    Before joining AEI, Antos was assistant director for health and human resources at the Congressional Budget Office (CBO). He has also held senior positions in the US Department of Health and Human Services, the Office of Management and Budget, and the President’s Council of Economic Advisers. He recently completed a seven-year term as health adviser to CBO, and two terms as a commissioner of the Maryland Health Services Cost Review Commission. In 2013, he was also named adjunct associate professor of emergency medicine at George Washington University.

    Antos has a Ph.D. and an M.A. in economics from the University of Rochester and a B.A. in mathematics from Cornell University.



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