Reforming Medicare: Options, Tradeoffs, and Opportunities

3. Goals, Performance, and Options for Medicare

Medicare is hugely popular with both the public and policymakers . It provides nearly all people aged sixty-five or older and those with certain disabilities with health insurance that many would otherwise find costly or unavailable.1 It covers most medical costs of its elderly enrollees. It offers beneficiaries more choice of providers than do most health plans serving workers and their dependents. In addition, Medicare is an important source of employment, providing billions of dollars in income to hospitals, doctors, home health agencies, nursing homes, drug companies and pharmacies, medical device manufacturers , and other providers in every congressional district. Notwithstanding its popularity and positive results, Medicare suffers from serious flaws and faces daunting challenges. Its bene fits have gaps, especially for people with mental illnesses or those who need long-term care. Its focus on quality has been weak. And it is on track to impose ever-growing burdens on taxpayers . Projected Hospital Insurance (HI) outlays, for example, will likely exceed earmarked payroll and income taxes in the near future.2 Demands on general revenues to pay for Supplemental Medical Insurance (SMI) threaten severe federal budget deficits unless taxes are greatly increased. The rapid growth of health spending in public programs accounts entirely for the large projected budget deficits (table 3-1).3 29 Goals, Performance, and Options for Medicare 3 30 Goals, Performance, and Options for Medicare Some shortcomings are structural. For one, the distinction between hospital care (Part A) and physician services (Part B) laid out when Medicare was created is now regarded as artificial. For another, the drug benefit is administrated separately. Equally troubling, Medicare has failed to adapt quickly to the scientific advances that are remaking health care and the mode of its delivery. Other shortcomings—for instance, Medicare’s failure Table 3-1. Projected “Primary” Budget Deficit (–) or Surplus (+): Including and Excluding Medicare and Medicaid, Selected Years, 2007–80 a Percent of GDP Projected deficit or surplus Including all Excluding Medicare expenditures and and Medicaid and Year revenues associated revenues 2007 (actual) +0.8 +0.7 2010 +0.7 +0.9 2020 +0.0 +1.6 2030 –2.9 +0.9 2040 –5.0 +0.8 2050 –6.3 +1.4 2060 –7.9 +1.7 2070 –9.5 +2.2 2080 –11.2 +2.6 Source: Henry Aaron’s calculations based on unpublished data underlying the Congressional Budget Office (CBO), The Long-Term Budget Outlook (December 2007); CBO, “Update of CBO’s Economic Forecast,” Letter to the Honorable Kent Conrad (Washington, February 15, 2008); FHI Board of Trustees, 2008 Annual Report. The data combine CBO’s extended-baseline scenario for expenditures (adheres most closely to current law and assumes physician payment cuts as scheduled under the SGR) and its alternative fiscal scenario for revenues (assumes that none of the changes to tax law scheduled after 2007 will take effect and that the AMT will be indexed to inflation). a. The “primary” deficit or surplus is defined as all government spending, excluding interest on the debt, less all government revenue. Projected deficit excluding Medicare, Medicaid, and associated revenues is computed as follows: (1) projected Medicare and Medicaid spending are subtracted from CBO’s projection of total long-term spending, excluding interest payments (following CBO’s convention, bene ficiary premiums are included in outlays as offsetting receipts); (2) from projected total revenues the following items are subtracted: projected Medicare payroll taxes, revenues from taxation of certain Social Security benefits that are transferred to Medicare, Part D “clawback” payments by states, and general revenues used to finance Medicare and Medicaid in 2007. The “projected deficit, excluding Medicare and Medicaid and associated revenues” is the difference between (1) and (2). It excludes from the projected deficit the anticipated increase in general revenues that will be needed to support Medicare and Medicaid if health care spending per beneficiary continues to outpace income growth by amounts as projected by the CBO in The Long-Term Outlook for Health Care Spending (November 2007). Goals, Performance, and Options for Medicare 31 to promote coordinated care for those with multiple illnesses—are common to private insurance as well. Still others are rooted in the difficulties inherent in designing and administering a uniform national program capable of providing thousands of locally produced and delivered services in hundreds of markets to a heterogeneous clientele...