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President Bush meets with the democratic members of Congress in the Oval Office July 12, 2001 to discuss the bipartisan-sponsored plan to improve Medicare.
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Modernize
and Reform Medicare
En Español
Like
Social Security, Medicare represents a promise that the Nation has
made to its senior citizens—a promise that we have an enduring obligation
to keep.
With
this Congress, the executive and legislative branches and both political
parties will take a first step towards restoring the strength of
this promise not just for years to come, but for generations to
come.
Modernizing
and saving Medicare must rank among the most urgent priorities in
an era of common purpose.
Promises
to Restore
Following Congressional passage of Medicare in 1965, President Lyndon
Johnson said: "No longer will older Americans be denied the healing
miracle of modern medicine." Yet today, in many ways, Medicare no
longer keeps pace with modern medical advances. Although Medicare
coverage of preventive care services has been significantly expanded
over the past five years, Medicare still offers a benefit package
based on the most popular Blue Cross/Blue Shield package of President
Johnson's era, a standard of excellence at the time that is inadequate
today. And for many seniors, Medicare does not
offer coverage choices that many of the privately insured have become
accustomed to receiving. One of the largest flaws in Medicare coverage
today is its failure to cover outpatient prescription drugs. Approximately
98 percent of private health insurance plans offer a prescription
drug benefit or a cap on out-of-pocket expenses as an integral part
of the benefit package. Private health insurers recognize the important
role of drug therapy in medical care. Drugs can often be cost-effective
therapies preventing the need for more expensive hospitalizations
or other intensive therapies. The need for Medicare reform does
not relate only to the financial condition of Medicare or the lack
of adequate coverage. Of perhaps equal concern is the complexity
and inflexibility of the Medicare bureaucracy itself. The current
system, with ever increasing pages of regulations, administrative
guidelines and other endless directives issued on a monthly basis,
leaves providers and beneficiaries often bewildered and frustrated.
The current system is too complex, too centralized, and becoming
more so each year. Burdensome regulations and other central directives
force providers to take time away from patients to comply with excessive
and complex paperwork.
Excessive
administrative complexity also makes Medicare prone to fraud and
abuse. In 1999, the HHS Inspector General determined that Medicare
made more than $13 billion in improper payments. Given the complexity
of Medicare, it is often difficult to determine where honest mistakes
end and fraud begins. The GAO concluded as recently as January 2001
in its High-Risk Update that the Health Care Financing Administration
(HCFA) "lacks sufficient information on newly designed payment systems
to determine whether providers are being paid appropriately for
the services they deliver."
Sustaining
the Medicare program for future generations of beneficiaries will
require an honest and forthright effort by the Federal Government
to address these problems. Reforming Medicare will also require
reforming HCFA. This will include employing every strategy appropriate
to enhance quality health care options for beneficiaries rather
than relying on increasingly punitive regulations, arbitrary and
multiple pricing systems, and delays to maintain the status quo.
How
Outmoded Has Medicare Become?
Today, Medicare covers only 53 percent of the average senior's annual
medical expenses. The current Medicare program is burdened by horrific
bureaucratic complexity and operates in a noncompetitive, inefficient
manner. In addition, the program lacks the flexibility to operate
differently.
Medicare
fails today's elderly patients in other ways:
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The preventive care services offered under Medicare, while greatly
expanded, are still insufficient to help seniors remain healthy,
and therefore avoid more expensive care later;
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Routine services such as annual physicals, vision tests and hearing
aids are not covered;
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It is not coordinated with the employment-based health insurance
system, providing disincentives to continued work;
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It has a fee-for-service cost-sharing structure that still leaves
seniors vulnerable to high costs, and is less effective than necessary
in ensuring good use of care; and
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It currently maintains separate trust funds, one for inpatient
hospital and post-acute care, and one for physician fees and other
outpatient costs. This separation may lead to misleading assessments
of Medicare's financing and reflects a different era of medicine.
Financial
Reasons for Reform
In addition to the way Medicare fails to provide the care seniors
deserve, there is irrefutable evidence that Medicare's finances
are headed for bankruptcy.
Like
Social Security, Medicare's long term financing is driven by the
significant demographic trends that will begin taking shape in
about 10 years. (See Chart 5-1.)
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Between 2010 and 2030, the number of persons age 65 and older
will increase from 39.7 million to 69.1 million. That's an average
of one and a half million more seniors per year for 20 years.
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During that same period, the Medicare actuaries project Medicare
spending will increase from $324 billion to $694 billion, in constant
2000 dollars.
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This shift in demographics will begin with retirement of the baby
boom, but it will not end there.
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The great advances in health and well-being of the 20th Century
will lead to significant increases in the average life span in
the 21st Century.
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Demographers now project that persons born in 2000 will live,
on average, to age 76, up almost six years compared to people
born in 1970.
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As a result, there is projected to be a permanent shift in the
ratio of workers to Medicare beneficiaries, from 4.0 workers today
to 2.3 in 2030 and 2.0 in 2070.
These
demographic trends will dramatically change spending for both Social
Security and Medicare, but the problem is likely to be even more
pronounced in Medicare due to the expected increases in health care
costs per beneficiary.
Medicare
per capita spending is projected to vastly outpace the consumer
price index for the next 25 years.
These
demographic trends are impacting the Medicare program as a whole,
making it critical to focus on the solvency of Medicare in its entirety.
While
it is true that the Hospital Insurance Trust Fund is projected to
have a surplus over the next ten years, it is misleading to focus
so much attention on only one of the program's two trust funds representing
only 60 percent of total Medicare spending.
A full
assessment of Medicare's finances reveals spending exceeds the total
of tax receipts and premiums dedicated to Medicare today, and that
"financing gap" is projected to widen dramatically. This gap is
$51 billion in 2000, growing to $216 billion (using constant dollars)
in 2020, and $368 billion in 2030. Not only is there no surplus
in Medicare today, there is a large deficit. (See Chart 5–2.)
Even
without the large financing problem, Medicare modernization would
be necessary to ensure beneficiaries get high quality health care.
But the looming financial shortfall makes reform even more urgent.
To be successful, reform must substantially improve Medicare's long-term
financing.
The
President's Approach to Improving and Strengthening Medicare
Coupled with a systematic effort to change the outmoded Medicare
program and its administration, the budget will devote $156 billion
this year and over 10 years for urgently needed Medicare modernization,
including providing for an integrated prescription drug plan.
The
President plans to reform Medicare based on the following principles:
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Medicare's current guarantee of access to seniors must be preserved;
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Every Medicare recipient must have a choice of health plans, including
the option of purchasing a plan that covers prescription drugs;
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Medicare must cover expenses for low-income seniors;
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Reform must provide streamlined access to the latest medical technologies;
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Medicare payroll taxes must not be increased; and
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Reform must establish an accurate measure of the solvency of Medicare.
The
President's Proposal: Immediate Helping Hand
Until Medicare reform is enacted and implemented, the President
is proposing a program to give immediate help to our neediest
seniors.
The
President believes it is essential to get help to seniors now.
He believes it is equally essential for the Administration and
both parties in Congress to work together to make certain that
Medicare reform produces a better program that is financially
sound.
The
President's program includes:
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Immediate Helping Hand funds that will go to States to offer
quick, short-term assistance for low income seniors to cover
all or part of the cost of prescription drugs, and catastrophic
drug coverage for all seniors;
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Prescription drug coverage to seniors whose incomes are at or
below 135 percent of the poverty line for no premium and nominal
co-payments. The President's proposal also provides partial
coverage for those with incomes between 135 percent and 175
percent of poverty; and
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Funds for States to provide catastrophic coverage for all seniors
with over $6,000 in out-of-pocket drug costs per year. (See
Chapter 13, "Invest in Health Care" for a more detailed description.)
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