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Saving the Medicare System With Medical Savings Accounts
Medicare, the federal health insurance program for the elderly, is going
bankrupt. As Table I shows, the program currently provides health insurance
for about 32.4 million seniors (age 65 and over) at an annual cost of $142
billion. The program also covers 4.3 million disabled individuals at an
annual cost of $17 billion. Without fundamental change, its future is bleak.
If left unchecked, Medicare spending will continue to escalate, costing
$1.6 trillion over the next seven years. In its latest annual report, the
Board of Trustees for the Medicare program, including three members of President
Clinton's own cabinet, projected that the program will run out of funds
in 2002. 1 [See Table II.]
While that fact has been widely reported, what is not widely understood
is how enormous the financial shortfall will be in the future. Unless this
problem is addressed, by the time today's young workers retire, paying all
of their promised benefits would require:
This financial collapse is occurring even though Medicare already in effect
rations health care to the elderly in order to contain costs. For example:
Even at the lower growth rate, spending per Medicare beneficiary would still
grow from about $4,800 this year to about $6,700 in 2002, an increase of
about 40 percent. Because of increasing numbers of beneficiaries, total
spending under the program would grow by more than 50 percent during the
seven-year period, from almost $200 billion in 1995 to almost $300 billion
in 2002.
These projections come under the so-called intermediate assumptions
made by the trustees. Under the pessimistic assumptions, which may be more
realistic, the deficit is far worse.
Congress has set 1995 budget targets for Medicare that begin to address
this financial crisis. The targets would reduce the rate of growth of Medicare
from more than 10 percent per year to 6.4 percent per year. This lower rate
of growth approximates the level of increases in private sector plans in
recent years, where costs have grown at about half the rate of Medicare.
[See Figure I.] As a result, Medicare would spend $273 billion less than
it otherwise would over the next seven years.
