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News of the Day ... in Perspective


Medicare beneficiaries have to “adjust their expectations,” say Trustees

In their 2005 report, Medicare Trustees write: “The financial outlook for the Medicare program continues to raise serious concerns.” Their projections “demonstrate a need for timely and effective action.” Early reform “increases the time available for affected individuals and organizations—including health care providers, beneficiaries, and taxpayers—to adjust their expectations.”

Quoting Nixon advisor Herb Stein, Michael Cannon of the Cato Institute notes that “if something cannot go on forever, eventually it must stop.” And the Trustees Report shows, again, that Medicare is unsustainable. Last year, Congress had to dip into general revenues to fund Medicare’s shortfall: 9% of all federal income-tax revenue was required.

To cover all future Medicare deficits, Congress would have to increase the payroll tax immediately from 2.9% to 17.8% of all wages. If Congress waits until 2008, the required rate would be 19.8%. Such a huge (700%) increase is said to be politically infeasible and would certainly decrease economic output.

The options are: raising the eligibility age; requiring higher copayments from wealthy seniors; reducing choice of doctors; and eliminating covered services.

The Cato Institute suggests an ownership solution: giving seniors risk-rated vouchers to purchase their own coverage or allowing workers to place their payroll taxes into a personally owned retirement health savings account (San Francisco Chronicle 4/3/05).

Additional information:

2005 Medicare Trustees Report

“How to Save Medicare” by Michael F. Cannon

AAPS Medicare White Paper and Reform Proposal

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