Medicare the ‘entitlement’: Finite resources require changes

Douglas W. Jackson

It is common knowledge that Medicare faces a grim financial future. Government officials have projected that by 2019, there will be insufficient funds in the Medicare Part A Hospital Insurance Trust Fund to pay for current services and benefits without any additional revenue. Federal spending for fiscal year 2010 totaled $3.5 trillion, and Medicare accounted for $524 billion (15%) of the total amount. The percentage of spending will continue to increase without major reforms.

Medicare funding is dependent on the number of people working and paying their payroll taxes. According to the Kaiser Family Foundation, payroll taxes account for 85% of Part A revenues, while general revenues fund 74% of Part B and 82% of Part D. The number of people working and paying taxes will decrease from 4.0 per beneficiary in 2000 to 2.3 per beneficiary in 2030. At the same time, it is estimated that Medicare beneficiaries will double from 40 million to 80 million. Not only will there be more beneficiaries, but new health care reform initiatives will also have mandates for additional medical services and equipment coverage.

Strong public sentiment

Currently, Medicare provides health care coverage to 47 million people – 39 million people age 65 years and older and 8 million younger adults with permanent disabilities. There is strong public sentiment against cutting Medicare benefits as many seniors believe they have earned a promised lifetime of medical care after retirement.

However, the reality is that Medicare has finite resources and major funding issues need to be resolved. The relatively new prescription drug program is not close to being adequately funded. In addition, new coverage, such as mental health, pediatric dental and vision care, rehabilitation therapy and wellness services, are not yet fully defined.

Long-term care will become a greater funding issue because Medicare is currently not structured to pay for it nor dental, vision and hearing care. As our population ages, Medicare reforms need to address the increasing numbers of beneficiaries and costs for new and innovative treatments and technologies.

Highest spenders for health care

The U.S. government’s share of health care expenditures was 20% in 1960 and approximately 50% in 2007. The new health care reform package will continue to increase the government’s share and will exceed the private sector’s share in time.

As we implement expanding coverage for the U.S. population, we need to be aware of one big difference between the United States. and countries with national health insurance: We are, by far, the biggest spenders of health care. Based on per capita spending or as a share of the gross domestic product, we spend anywhere from 50% more than the next highest spender and up to 200% more than many other countries. Countries with national health care coverage are also currently facing major funding problems. If they spent as much as the United States did per capita to support their health costs, their economies would buckle from the needed taxation and their people would demonstrate in the streets as they are experiencing in the United Kingdom due to entitlement cuts.

Where are the projected savings?

Much of the projected savings under the Patient Protection and Affordable Care Act were based to a large degree on Medicare payment reductions to doctors, hospitals and other health care providers. The annual report from the Medicare Board of Trustees caused Richard Foster, Medicare’s chief actuary, to comment that Medicare payment rates for doctors and hospitals serving seniors will be cut by 30% during the next 3 years. The implementation of those drastic reimbursement cuts has been delayed until after the 2012 election.

In addition, we have not heard much about the new Medicare Independent Payment Advisory Board established by President Obama’s health care reform. It is tasked with limiting spending on Medicare and its decisions can become effective without any congressional action. For the first time, an unelected group will be empowered to limit health care spending and it can only be overridden by new legislation. One variable in reimbursement reductions are the courts will not allow government-funded programs to restrict access to proven treatments. In the future, we will see constant debates by politicians and bureaucrats on cost and comparative effectiveness, quality of life and proven outcomes for medical care.

2012 Election

The 2012 election is critical to start addressing the 75% of the budget that is non-discretionary and entitlement based. We are investing heavily in our elderly population with these entitlements for Medicare, Medicaid and Social Security at the expense of the younger generations. Politicians have carefully avoided any meaningful discussion of these problems. Only now has one proposal been brought forward with significant reform proposals. Hopefully, it will start and generate meaningful debate. In the past, politicians who have tried to address or change the issue have paid a price politically. We are running out of time. We must hold our politicians more accountable. They use their personal political survival traits to speak differently to different stakeholders.

For example, President Obama is delaying the impact of some of his political realities from the unpopular parts of his reform package. Health and Human Services unexpectedly set Medicare rates for 2012 with a per capita Medicare Advantage payment increase of 1.6% on average. Many seniors favor Medicare Advantage, and its enrollment has increased 6%. It is similar to the private insurance many seniors had during their working life. It is the type of insurance then presidential candidate Obama said he would not change and at the same time, he also planned to eliminate the Medicare Advantage program. It appears the White House is evading blame from the seniors for deleting this program for those who like their current coverage.

Get involved

I encourage you to be involved in the development of the ideas and debate leading up to the selection of the 2012 candidates. As both physicians and citizens, we need to ask the key questions about the future of Medicare entitlements in the United States. Ask your candidates about what basic coverage they believe all beneficiaries should have, and how they propose making Medicare self-sufficient. You can also ask how your candidate proposes limiting the overutilization of health care services and what types of rationing of care he or she believes will be necessary. You should learn how your candidate plans to sustain and fund the Medicare drug benefit.

Current Medicare funding was designed for a different time — when life expectancies were shorter and the benefits were less expensive. If left unchecked, the projected financial short falls will have a devastating impact on our overall economy and will forward a staggering debt to future generations.

• Douglas W. Jackson, MD, is chief medical editor of Orthopedics Today. He can be reached at Orthopedics Today, 6900 Grove Road, Thorofare, NJ 08086; email: OT@slackinc.com.