Medicare Reform is Necessary to Save It

For over 50 years, Congress has been trying to maintain Medicare’s fiscal solvency. It is time Congress does just that to avoid the pending insolvency by 2024 of our health care safety net for the elderly and the poor.

Addressing the financial solvency of Medicare is not a new problem. Medicare’s funding has been an ongoing concern since its humble inception. On July 1, 1966, Medicare was authorized by title XVIII of the Social Security Act. Coverage consisted of hospital insurance (part A) and supplemental medical insurance (part B).

A payroll tax of .35% paid by employees and employers on income up to $3,500 was intended to cover all Part A costs. Part B was open to all citizens of all ages and legal aliens who had resided in the country for 5 or more years. Beneficiaries who voluntarily enrolled in part B paid a monthly premium of $3.00, which was estimated to be enough to fund 50% of part B costs, and federal general revenues covered the remainder.

(For a more indepth review of Medicare's history, you may wish to click into www.cms.gov.)

As Medicare's costs continued to grow, the Congress and the Department of Health and Human Services (HHS) took actions to help control costs, many of which modified provider payment methods. Major legislation was enacted in the Social Security Amendments of 1967, 1972, and 1983, the Medicare and Medicaid Anti-Fraud and Abuse Acts of 1978 and 1987, the nine budget reconciliation acts between 1980 and 1993, and the Balanced Budget Act of 1997.

None of the legislated changes were sufficient to retain the solvency of Medicare. By 2006, Medicare required more than 45% of its revenue be allocated from general funds. FICA contributions combined with beneficiary premiums simply were insufficient to fund the programs growing membership base as health care costs outpaced revenue collections. The 2010 Affordable Care Act put in place over $700 billion in proposed spending reductions.

Yet in 2012, the Social Security trustees issued the following analysis: "The Medicare HI Trust Fund faces depletion by 2024.The Trustees project that Medicare costs (including both HI and SMI expenditures) will grow substantially from approximately 3.7 percent of GDP in 2011 to 5.7 percent of GDP by 2035, and will increase gradually thereafter to about 6.7 percent of GDP by 2086."

They noted in their concluding remarks, "For the sixth consecutive year, the Social Security Act requires that the Trustees issue a "Medicare funding warning" because projected non-dedicated sources of revenues — primarily general revenues — are expected to continue to account for more than 45 percent of Medicare's outlays, a threshold breached for the first time in fiscal year 2010."

(The full Trustee's summary can be found at www.ssa.gov/oact/trusm/index.html.)

The prescription to save the fiscal health of Medicare is likely to require many of the difficult choices Congress has been forced to implement in the past, by addressing both program expenditures and revenues. What cannot be ignored though is restructuring Medicare has been a bipartisan success story for over 50 years. There is no reason it cannot be again in 2013.

Restoring Medicare’s solvency could be the cornerstone upon which America builds a bridge toward long-term deficit reduction. Saving Medicare is a priority that should transcend political ideology for the good of the nation today and its future tomorrow.