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Medicare Reform: Assuring Health and Economic Security for Beneficiaries

Medicare is a government program that works. Before its enactment more than 30 years ago, half of older Americans were uninsured and at risk for financial disaster if illness occurred. Today, the program assures the health and economic security of more than 38 million Americans.

But a growing aging population, greater numbers of frail elderly, and an increasingly technological and expensive medical system are straining Medicare’s budget. Part A of the program, which pays for hospital services, skilled nursing, and home care, faces bankruptcy by 2001 without Congressional action.

In testimony before the Senate Budget Committee on January 23rd, Karen Davis, President of The Commonwealth Fund, has offered a clear analysis and some practical resolutions to Medicare’s fiscal squeeze.

Davis believes the issues can be addressed in both the short and long term. Among her solutions: improving and restructuring benefits; extending Medicaid protections to low income Medicare beneficiaries; adopting prospective payment methods for health care providers not yet being paid in such a way, particularly for home health; improving managed care options through payment changes, quality standards, and consumer disclosure and education; and finally, restructuring Medicare’s revenue base to match projected needs.

For example, Davis demonstrates that cost-sharing, a popular solution to the Medicare budget crisis, would burden those least able to afford increased medical expenses--the oldest and sickest beneficiaries. She believes a better solution might be to offer a benefits package with little or no cost-sharing in return for a higher premium, which would spread total program costs and decrease the impact on those who use it most.

Davis also offers ways to change methods of payment and Medicare revenue sources in an effort to reform the process and protect the program. Finally, she believes that Medicare Part A and Part B should be merged to allow innovative ways to pay for both.

All this must be done, warns Davis, without risking Medicare’s mission--providing health and economic security to elderly Americans.

Facts and Figures
  • Three-quarters of Medicare beneficiaries have incomes less than $25,000.
  • The average Medicare beneficiary spends 21 percent of income on out-of-pocket medical expenses; those expenses rise to 30 percent of income for the poorest.
  • The sickest 10 percent of the elderly averaged $37,000 in Medicare outlays last year, with out-of-pocket expenses of $8,800; the healthiest 20 percent had no outlays.
  • In 1966, Medicare’s hospital deductible was $40; today it is $736, considerably higher than the $190 it would be if increased only for general inflation.
  • In 1966, the Part B premium was $36 ($171 in current dollars); it has risen to $510.

Publication Details



Medicare Reform: Assuring Health and Economic Security for Beneficiaries, Testimony before the Senate Budget Committee, Karen Davis, Ph.D., The Commonwealth Fund, January 23, 1997