Medicare's Fiscal Problems: An Imperative for Reform

Abstract

Many observers have noted that Medicare expenditures will significantly outstrip projected revenues over the course of the next 25 years. This paper examines the economic and demographic assumptions behind forecasts of Medicare hospital insurance and supplementary medical insurance expenditures and revenues and analyzes various strategies for closing the impending gap. It is argued that the present forecasts already assume considerable success in controlling hospital costs and physician payments, making substantial further savings unlikely. Shifting more of the burden onto the elderly through increased cost sharing or higher premiums also will not solve the program's fiscal problems over the long term. The remaining alternative--imposing higher income or payroll taxes on the under-65 population--is also unlikely to be a welcome solution. The authors argue that, eventually, the nation must choose between some form of a two-tier system of benefits or a Canadian-style national health insurance system.

A Preliminary Analysis of Beneficiary Discharge Status and Post-Hospital Placement Before and After the Implementation of Medicare's Prospective Payment System

“…Under pessimistic assumptions, the relative size of the fiscal gap is well over twice as large as tmder optimistic assumptions (Holahan & Palmer, 1988).…”

“…There is ample reason to believe that the significant oodgetary savings achieved in the first three years of PPS cannot be sustained (Brown, 1988b;Holahan & Palmer, 1988). Recent analyses of the status of the Medicare program (both the HI and SMI trust funds) indicate that the Medicare program is still in deep finandal trouble (Holahan & Palmer, 1988).…”

“…Recent analyses of the status of the Medicare program (both the HI and SMI trust funds) indicate that the Medicare program is still in deep finandal trouble (Holahan & Palmer, 1988). The conjunction of continued rapid escalation of overall health care costs, the rapidly expanding elderly population, and the increasing need for health care services among the elderly has created another policy dilemma for the Medicare program (Vladeck & Alfano, 1987).…”

“…In their analyses of the dimensions of the fiscal problem, Holahan and Palmer (1988) condude that, even under optimistic assumptions and despite the slight decreases in the rates of growth under PPS, the long-run picture for the Medicare program looks bleak. Under optimistic assumptions, the total revenue shortfall (that is, the amount of additional revenues and/or expenditure cuts necessary to maintain fiscal balance in the Medicare program) will total over • .5 percent of GNP (or $27 billion) by the end of the 1990s.…”

“…In addition, because Medicare will pay for medical but not chronic care of the elderly, Medicaid has become the principal public source of funds for nursinghome care. The maintenance of the fiscal integrity of the Medicare program has produced three broad themes, induding: 1) increased control over provider payments, including capitation and rate setting proposals; 2) reduced benefits or increased cost sharing; or 3) increased tax burdens on the working population (Brown, 1988b;Holahan & Palmer, 1988).…”