NCPA - National Center for Policy Analysis

The First Stage of Medicare Reform: Fixing the Current Program

October 28, 2011

With an ever-looming federal debt, Congress will soon be forced to make pivotal decisions regarding the future of entitlement programs in the United States.  Particularly, the rising costs of Medicare will have to be reexamined and serious plans will have to be proposed for its reform, as the program will otherwise continue to consume unprecedented levels of federal revenues, says Robert Moffit, director of the Center for Health Policy Studies at the Heritage Foundation.

  • Under current law, Medicare spending is expected to jump from $522.8 billion in 2010 to $932 billion in 2020, and will account for between 5.2 percent and 5.9 percent of gross domestic product by 2030.
  • The program's long-term unfunded liabilities currently amount to a breathtaking $36.8 trillion.
  • With the gradual retirement of the baby boom generation, the number of beneficiaries is projected to grow from 47.4 million in 2010 to almost 81 million in 2030.

In order to curb this out-of-control growth, reforms in several areas can be implemented that, if adopted, would save $9.4 trillion by 2035 when compared with Congressional Budget Office (CBO) baselines. 

  • First, the government should implement cost caps (approximately $5,500) on catastrophic illness, removing the need for supplemental Medigap plans that cover deductibles. This would reduce the use of secondary policies and decrease overutilization of medical resources.
  • Second, the government needs to implement an additional premium on beneficiaries to cover deficits within the Hospitalization Insurance Program (Plan A of Medicare coverage). This is because unlike other portions of Medicare, Plan A cannot receive funds from general government revenues to finance its deficits, and will be insolvent by 2020, according to the CBO.
  • Third, beneficiaries' contribution toward Part B of Medicare should be increased gradually from 25 percent to 35 percent to reduce the fund's reliance on general tax revenues. The same policy should be implemented for Part D of Medicare.
  • Fourth, benefits for the wealthiest recipients should gradually be phased out.

Source: Robert Moffit, "The First Stage of Medicare Reform: Fixing the Current Program," Heritage Foundation, October 17, 2011.

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