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Face Facts About Medicare

Op-Ed by Secretary Leavitt as appeared in the Charlotte Observer on August 2, 2008

Medicare has done a great deal of good since its enactment 43 years ago this week. It currently provides health care for 44 million seniors. But bipartisan action is needed if we are to keep our commitment to seniors without breaking the bank or the financial backs of American workers.

For the second year in a row, Medicare spending has triggered a statutory alarm requiring Congress to act to keep the program solvent. Yet some members of Congress still refuse to face the facts about the trouble we are facing.


Three things are combining to create a "perfect storm" of financial liability headed right for our children and grandchildren: rising health-care costs per beneficiary, many more beneficiaries and fewer workers per beneficiary.

In 1970, the average cost per Medicare beneficiary was under $2,000 in today's dollars. Now it's over $10,000. Meanwhile, the number of Medicare beneficiaries has doubled. Put these two things together, and you can see why the overall cost of Medicare has risen from about $40 billion in 1970 to $467 billion today. That's more than a tenfold increase - after accounting for inflation.

Medicare costs have risen even faster than overall health-care costs - much faster, in fact. From 1970 to today, overall health-care costs have doubled as a percentage of the gross domestic product, while Medicare costs have quadrupled as a percentage of GDP.

The problem only gets worse in the future, as baby boomers retire. The household healthcare spending will nearly double in the next 20 years from 23 percent of total compensation to 41 percent. In the same 20 years, Medicare's share of federal spending will also nearly double, from 13 percent to more than 23 percent. In just the next 10 years, we will be spending more each year on Medicare than we now spend on national defense.

Now comes the final component of the storm - fewer workers to pay for each beneficiary. In 1970, there were more than four workers for each Medicare beneficiary. Now there are slightly under four. In 20 years, there will be just two and a half.

So what can we do?

First, we must replace volume of care with value of care as Medicare's best rewarded virtue. That means rewarding physicians for providing high-quality care, instead of just paying them for more and more care. Right now, the system actually rewards low-quality care, since low-quality care often results in a need for more care.

Second, we need to make Medicare Parts A and B operate more like the Medicare Part D prescription drug benefit. Part D uses competition, quality- and cost-transparency and consumer choice to keep costs almost 40 percent below original estimates for the benefit. We need to adopt similar competition-based reforms for the rest of Medicare.

Third, every generation needs to do its share. My 30-year-old son and his wife are struggling to buy a home and raise a family, but he's also paying taxes to subsidize my parents' Medicare coverage, who incidentally make substantially more money than he does. On the other hand, my parents have done their time and paid into the system, and they have a reasonable expectation that the government is morally obligated to fulfill.

Both generations could make good arguments on their own behalf. The problem is, both would be right. But what's not right is to push these difficulties off onto future generations by failing to resolve the problem. Doing nothing now will only limit the options available in the future, making the problem harder and harder to solve.

In February, the president sent Congress legislation that addresses a few of Medicare's ills, but Congress ignored the proposal and just last week voted to ignore the very law that requires it to address Medicare solvency.


This can't go on. In fiscal 2019 - just 10 years from now - the Medicare Hospital Insurance Trust Fund will become insolvent, and there is no backup plan in the law to ensure that hospitals continue to be paid when the fund is depleted. If Congress does not act soon, its only choices later will be to raise taxes, cut benefits and slash payments to providers.

Every generation of Americans has overcome challenges to secure our nation's role as the world's economic leader. The challenge for today's generation is to find a way to keep our promises to seniors without overburdening the young. Meeting that challenge will require change, and change will require courage.

In a global market, there are three ways to approach change. You can fight it and fail; you can accept it and survive; or you can lead it and prosper. We are the United States of America; let us lead.

Mike Leavitt is secretary of the U.S. Department of Health and Human Services.