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Shaping the Future of Medicare

With the coming retirement of the baby boom generation, the Medicare program will be challenged by unprecedented numbers of elderly and disabled Americans. In invited testimony on April 21, 1998, before the National Bipartisan Commission on the Future of Medicare, Karen Davis, president of The Commonwealth Fund, identified several principles to guide the debate on how to provide care for this population.

Future needs for Medicare outlays are difficult to predict. Variables such as the volatile state of the health care industry, medical breakthroughs, a healthier and better educated elderly population, and economic uncertainties add up to a unknowable future. Five-year incremental changes in Medicare policy with careful monitoring would be most effective.

Medicare beneficiaries already shoulder a rapidly growing share of costs. Medicare currently covers only 53 percent of health care costs. The rapid rise of prescription drug and long-term care costs indicates that costs to future beneficiaries will be even higher.

Employer-based coverage is decreasing. If current trends continue, future Medicare beneficiaries will be less likely to have supplemental health care coverage through employer-based plans.

Low-income beneficiaries are most at risk. Most of those receiving Medicare have low or modest incomes. Those living below 125 percent of poverty spend 40 percent of their incomes on health care.

Expenditures are skewed by a small number of recipients who need the most care. The sickest 10 percent of Medicare recipients account for 75 percent of all Medicare expenditures. Combining prospective payments with capitated rates could address the issue of managed care plans avoiding these higher-cost patients.

The implications of the move to managed care are unknown. By 2007, 39 percent of Medicare beneficiaries are expected to be enrolled in managed care, compared with 14 percent today. This movement raises concerns about quality standards, monitoring, and consumer education.

Medicare payment rates should be comparable to the private sector. If Medicare pays less than employers to managed care plans and other providers, it cannot expect to have its beneficiaries receive the same quality care.

Facts and Figures
  • Today's elderly population spends an average of 21 percent of income on out-of-pocket health care costs; those under age 65 spend an average of just 8 percent of income.
  • Medicare paid slightly more than half of 1992 beneficiary health care costs. Medicaid paid 20 percent, private insurance paid 10 percent, and others paid 3 percent.
  • In 1997 dollars, beneficiaries’ Part A deductible increased nearly 400 percent (from $193 to $764) from 1966 to 1998. The Part B premium increased from $174 to $526.

Publication Details



Shaping the Future of Medicare, Testimony before the National Bipartisan Commission on the Future of Medicare, Karen Davis, Ph.D., The Commonwealth Fund, April 21, 1998