NCPA - National Center for Policy Analysis

Congressional Budget Office on Medicare's Deteriorating Financial Condition

June 13, 2003

Even without the 10-year, $400 billion drug benefit under discussion, Medicare is careening toward financial disaster, according to the Congressional Budget Office (CBO):

  • Medicare already operates in the red because costs are rising faster than the payroll taxes and premiums that fund it.
  • Left unchanged, Medicare's share of the federal budget, now 13 percent, will rise to half of all federal spending by 2075.

In January, President Bush proposed linking cost-cutting reforms to a new drug benefit. Drug coverage would be provided to seniors willing to join private health plans that presumably would hold down expenses better than Medicare.

Possible reforms detailed by the CBO:

  • Medicare spending could be cut by $75 billion during the next decade if the $65 monthly premium seniors pay for physician services is increased by $13.
  • Replacing the program's vast array of co-payments and deductibles with a uniform deductible and 20 percent co-payment could save the program $37 billion.
  • Putting limits on so-called Medigap policies -- which fill holes in Medicare coverage but also encourage the overuse of health care services -- could save $36 billion.

Also, unlike the private sector, Medicare doesn't use "preferred provider" networks of doctors that deliver care in a cost-effective way. Preventive care is largely uncovered, as is management of chronic illnesses to avoid unnecessary hospital stays.

A bipartisan congressional commission four years ago proposed a complete overhaul of Medicare that would give seniors a wide range of private health-plan options and encourage them to use medical care more efficiently.

Source: Editorial, "Tie Medicare's painful fixes to popular drug plan," USA Today, June 10, 2003; Douglas Holtz-Eakin, "Medicare's Long-Term Financial Condition," Testimony before the Joint Economic Committee of Congress, April 10, 2003.

For USA Today text


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