What to do about Medicare is at heart of budget debate

WASHINGTON — Congress and the White House are engaged in the most far-reaching debate about Medicare in the health program's 46-year history, an epic struggle that could bring significant changes in how the government helps seniors and others pay for their care.

Medicare faces a daunting financial crisis, forcing lawmakers to confront stark choices. Should younger people pay more to support the program? Should they assume that Medicare won't be around in its current form when they're ready for its coverage? Should seniors pay higher deductibles? What's the government's responsibility to the very ill and elderly who live on fixed incomes and need acute care?

In many ways, this is a debate about one generation's obligations to another — and about the role of government in caring for society's most vulnerable people. It's a struggle whose outcome may not be resolved for years, until a consensus is forged.

"Right now people are just beginning to position themselves to debate an issue that's been brewing for at least two decades," said Gail Wilensky, the director of the Medicare and Medicaid programs from 1990 to 1992.

The health care community has long been seeking ways to stabilize the system's finances, since the long-anticipated surge of baby boomer retirements was certain to drive up costs.

Now the federal government's broader budget deficit and debt crisis "has added urgency," said Wilensky, a senior fellow at Project HOPE, an organization that works to make health care available around the world.

Republicans in the House of Representatives have offered the most dramatic alternative. They took the politically risky step April 15 of voting to radically revamp Medicare so that after 2021, new beneficiaries would get government aid to pay for private insurance plans, rather than have the government cover the costs directly, as it does now.

Democrats branded the proposal an irresponsible dismantling of an effective safety net. They conceded that the current system — a complex network of hospital, physician and prescription-drug benefits that the government pays providers for directly — needs to be modified, but not radically overhauled.

As long as President Barack Obama is in office and Democrats run at least one house of Congress — they now control 53 of the Senate's 100 seats — Medicare is likely to survive largely in its current form.

But some changes are inevitable, because the financial warning signs are growing more ominous. Medicare is an obvious target, said John Holahan, the director of the Health Policy Research Center at Washington's Urban Institute, a centrist policy-research center.

The increasingly dismal fiscal ledger:

  • The federal budget deficit is projected to reach a record $1.65 trillion this fiscal year, which ends Sept. 30. According to the nonpartisan Congressional Budget Office, under current policies the government will run up about $7 trillion in budget deficits over the next 10 years. The national debt is already a whopping $14.3 trillion.
  • Medicare cost about $521.1 billion in the last fiscal year. Program officials expect the figure to reach $569.3 billion this year, and to grow at a 5.6 percent annual rate through 2021, far more than the anticipated growth in the overall economy.
  • Medicare is expected to serve 48.5 million beneficiaries this year; by fiscal 2021, the total's projected to be 64.9 million.
  • Medicare's hospital trust fund, which pays for inpatient hospital and related care, can't cover costs. It "still fails the test of short-range financial adequacy ... the fund also continues to fail the long-range test of close actuarial balance," the Medicare trustees' 2010 report said.

The Washington debate turns on two very different approaches to Medicare's future; they reflect the two political parties' rival visions of government's role in society.

Democrats would shave about $507 billion from Medicare spending between 2012 and 2021, according to the Congressional Budget Office. Changes could be significant, though not all that visible to consumers. Among them: establishing a mechanism to cut Medicare's spending if its growth rate rises above a set amount, penalizing hospitals for "excessive readmission rates" and creating new, potentially more efficient ways for people to get medical care.

Some conservatives call the Democratic proposals little more than gimmicks to sustain a wheezing system. The GOP takes special aim at the Independent Payment Advisory Board, a yet-to-be-appointed panel created by the 2010 health care law to oversee Medicare spending. Obama said last week that he wants the board to have even more cost-cutting clout, which conservatives oppose as oppressive central-government control.

In contrast, the Medicare overhaul drafted by House Budget Committee Chairman Paul Ryan, R-Wis., and approved by the Republican-dominated House in mid-April — with no Democratic votes — would create a new system, shifting costs over time from government to elderly beneficiaries.

People who retire after 2021 would choose from a list of private "guaranteed coverage options" and get federal help with the cost. The federal payments to 65-year-olds in 2022 would average $8,000, about the same as projected average provider reimbursements per typical 65-year-old patient under traditional Medicare that year. The payments would increase at the rate of general inflation in future years, though health care costs historically have risen faster than inflation.

Under current Medicare, a typical 65-year-old can expect to spend $6,150 of his or her own money on health care in 2022. Under Ryan's plan, that figure would jump to an estimated $12,500, according to figures derived from CBO estimates.

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