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Medicare faces financial crisis by 2014, report finds
By Lawrence M. O'Rourke
McClatchy Newspapers


February 24, 2005

Washington - While President Bush and Congress focus on fixing Social Security this year, Medicare faces unsustainable increases as it takes responsibility for paying the largest single share of prescription drug costs, federal officials said Wednesday. The new Medicare prescription drug benefit that becomes available next year could quickly threaten the solvency of the federal health insurance system that now serves 41 million Americans, according to a new report from the federal Centers for Medicare and Medicaid Services.

Medicare appears headed to become in 10 years the largest single payer of drug bills for Americans.

At present, Medicare pays 2 percent of the total prescription drug spending of $223.5 billion, according to the federal agency.

But that will all change after Jan. 1, when the Medicare law approved by Congress and signed by President Bush in 2003 will see its share of the U.S. drug bill multiplied 14 times.

Medicare, under the law, is destined to pay 28 percent of the estimated $249.3 billion prescription drug bill in 2006, with higher drug costs projected for the next decade.

By 2014, the government, primarily through Medicare, will be paying nearly half of the total health spending in the United States, according to the report.

Such a situation, barring enormous tax increases, would crowd out virtually all other spending except for the military and interest on the national debt, federal officials said.

"The system is unsustainable," said C. Eugene Steuerle, an economist at the private Urban Institute. It boils down to "health versus everything else," he said.

The crisis in Medicare will come within the next 10 years as private employers and states shift a substantial amount of their health care costs to Medicare, the agency report said.

The agency said that over the next decade the percentage of gross domestic product that goes to health care will continue to rise at a faster rate than economic growth and wages.

Health care spending now constitutes 15.3 percent of GDP. It is projected by the Centers for Medicare and Medicaid Services to go to 18.7 percent in 2014.

When Medicare takes on the 28 percent burden for prescription drugs in 2006, other entities will get relief, according to the report.

The share of prescription drug costs paid by Medicaid will drop from 18 percent this year to 9 percent next year. The share paid through the entire private health insurance industry will fall from 47 percent in 2005 to 39 percent in 2006.

Out-of-pocket costs paid by individuals will decline from 29 percent this year to 20 percent next year, the agency said.

The projection anticipates that in the next decade more Americans will claim benefits as baby boomers enter retirement, employers drop coverage and drug costs increase.

"Over the next decade, health care spending is expected to account for a larger portion of our economy's resources, while at the same time the public sector would fund a larger share of the nation's health care bill," said Stephen Heffler, director of the National Health Statistics Group at the centers.

The officials urged the White House and Congress to turn their attention quickly to health care costs, as Medicare trustees state that the Part A hospital insurance trust fund will be exhausted by 2019, well before the 2042 projected date for Social Security to use up its reserves.

"These trends will test society's willingness to find ways to slow cost growth without compromising quality or access," Heffler said.

Heffler said that the Medicare prescription drug program would have "very little impact" on overall health spending or total prescription spending during the next decade.

The actuaries provided an optimistic note for Americans - out of pocket spending on health care is expected to stabilize in the next decade after a long stretch of going up.

However, they acknowledged that taxpayers could be hit from another direction. They might be required to foot the bill through higher taxes for higher government spending on health.


Distributed by Scripps Howard News Service.

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