Medicare Trustees Make the Case for Reform

This week, Social Security and Medicare trustees reported on financial problems facing their programs (as they do every year).

There are no similar summaries for the nation's private health and retirement plans. What would it look like if there were?

— America's 1,000 largest retirement plans lost a staggering $965 billion in value — 13 percent — during the year that ended Sept. 1, 2008, the magazine Pensions & Investments reports. That was the largest annual decline since it began keeping track 30 years ago.

— During the last three months of 2008, the plans lost another $754 billion, just under 12 percent of their remaining value.

— National health spending jumped 65 percent between 2000 and 2007. It probably will hit $2.5 trillion this year — $8,160 for every American man, woman and child. Estimates based on the nation's 8.9 percent unemployment rate suggest more than 50 million people now are uninsured.

— Average premiums for employer-provided family coverage doubled between 2000 and 2008, to $12,680. Premiums for individual coverage rose an average of 95 percent, to $4,700.

There's no question that Social Security and Medicare are facing significant financial challenges. That's not surprising given what's happened over the last 18 months.

Some 5.7 million jobs have disappeared. That has reduced significantly the number of workers whose payroll taxes support those bedrock social insurance programs.

Meanwhile, health spending has continued to rise unabated, and baby boomers are inching closer to retirement.

Social Security trustees said Tuesday that income for the program will drop below expenditures by 2016.

Accumulated reserves — the mythical "lock box" of the 2000 election campaign — will be exhausted by 2037. After that, about one quarter of the program's cost would have to be funded by general tax receipts.

That's alarming, but small changes over the next 28 years could alter the balance sheet significantly. A 2 percentage point increase in payroll taxes, the trustees say, would bring Social Security finances into balance for the next 75 years.

More immediate concerns exist for Medicare. Trustees report that reserves for hospital care will be exhausted by 2017, after which general tax revenue would pay an increasing share of the cost. Trust funds that pay for outpatient care and prescription drugs don't face the same immediate shortfalls.

But as we've seen, the problem of rapidly escalating costs aren't exclusive to Medicare.

To some small extent, Medicare's costs are driven by demographics. But the biggest factor by far is the cost of care that each patient receives, not the number of patients. And that's not just a problem for public programs; Medicare's costs per patient actually have grown more slowly than those of private insurance since 1997.

A growing body of research shows that much of the care Americans receive provides little or no real benefit. That's why it makes sense to do more comparative effectiveness research — to study what treatments work best, and arm doctors with that knowledge.

It also makes sense to change the way doctors and hospitals are paid. They should be rewarded for providing better care, not more care.

The case for reform couldn't be clearer. It isn't social insurance programs that threaten America's financial future. It's our broken health care system.

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