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Published: Tuesday, 3/30/2004

Medicare in critical condition

THE annual rite of predicting financial gloom and doom for Medicare and Social Security rarely raises eyebrows any more. But this year's alarmist report by the trustees who monitor the fiscal health of the government programs is different. It contains a particularly stark financial forecast that will no doubt be seized as partisan fodder in the presidential campaign.

For that reason alone the latest fiscal accounting of the nation's retirement fund and especially its federal health insurance program bear close scrutiny.

While the trustees reiterate the certain dilemma Social Security will face as the number of retirees begins to swamp the number of working Americans paying for their benefits, the target date for that unhappy event - 2042 - has changed little over the past year.

What has changed dramatically has been the rapid financial deterioration of Medicare.

The grim diagnosis by the Medicare board of trustees put the program's insolvency seven years ahead of last year's prediction. Since the creation of the health insurance program in the 1960s, its financial problems have never lurched so quickly to the fore or been described as so dire.

The government report predicts the part of the Medicare program that pays hospital bills will run out of money in only 15 years, just in time for the huge Baby Boom generation to begin retiring and applying for hospital benefit coverage. Trustees say this year the Part A hospitalization fund will slip into deficit.

That means the Medicare tax payments to pay those benefits will not cover the bill any more and the government will have to find other sources of revenue to make up the shortfall. The financial outlook for the program's hospital fund has worsened so fast, the report notes, because of rising health care prices, reduced revenues, and a change in last year's Medicare reform bill that increased payments for rural health providers and managed care plans which offer Medicare.

The best known part of that bill, prescription drug benefits, didn't technically contribute to Medicare's accelerated insolvency because it's funded out of the federal budget. But the new drug benefit is expected to add significantly to Medicare's growing burden on general revenues in the coming decades.

Both Social Security and Medicare - to a faster degree - simply reflect the fundamental problem that occurs when fewer workers are supporting higher numbers of retirees who are living longer and with growing health-care costs. The scenario is a funding crisis waiting to happen - which is old news to politicians forever sidestepping the hard choices necessary to strengthen the programs' long-term financial security.

But the new development that Medicare's financial problems will be larger, sooner, and more difficult to solve than those confronting Social Security requires urgent action. Remedies like a combination of tax hikes and benefit cuts should have been debated and implemented by now.

Obviously no politician wants to propose either tax hikes or program cuts and risk alienating both young and elderly constituents. Clearly lip service is the preferred option during an election year.

But the funding dilemma for government entitlement programs is no longer an issue that can be put off indefinitely because it's politically expedient to do so. The money shortage is not a theoretical argument any longer, something that might happen years down the road.

For Medicare recipients - virtually everyone over 65 - the crunch has arrived. Now what?



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