Medicare: right the ship before it sinks.

AuthorRoy, P. Norman

Today Medicare is the fastest growing program in the federal budget. Total spending on the program is exceeded only by Social Security, defense and interest on the national debt. Unless action is taken, Medicare's hospital insurance trust fund (Part A), which is financed through payroll taxes on both employers and employees, is projected to become insolvent by 2002. As the baby-boom generation nears retirement, reform of the program is essential to prevent an explosion in the budget deficit. By 2030, Medicare will cover nearly 20 percent of the U.S. population, compared to today's 12.8 percent. Fixing Medicare will require some tough decisions on the part of our elected officials, decisions they have thus far been able to avoid.

But those hard decisions cannot be deferred any longer. We must make the hard choices now in order to spare future generations from severe hardship. Changes that simply cut reimbursement levels to providers, raise payroll taxes or otherwise shift costs from one sector to another merely obscure the program's real problems and will not achieve long-term solvency. It will take a lot of courage to tackle these issues and put the needed long-term solutions in place. Health-care providers, employers, beneficiaries and taxpayers will all have to share the pain in meeting the costs of reforming Medicare.

Last November Financial Executives Institute formed an ad-hoc committee to craft a set of principles for ensuring the program's long-term viability. The committee, made up of senior financial executives representing both large and mid-size employers, recently released its statement of principles. The committee concluded that bringing about long-term solvency of the Medicare program will require a comprehensive review of how the program is funded and managed. A good place to start is the Health Care Financing Administration, the agency that oversees Medicare and Medicaid. Simply put, HCFA should act more like a private employer and be empowered to shop around for competitive bids for its business. Market-driven competition among providers for Medicare business, based on price and quality, should...

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