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Blue-Ribbon Panel Considers Medicare's Larger Social Role: NASI Panel Urges Medicare Reform be Achieved Without Undermining Program's Major Contributions to Society

For Immediate Release: January 27, 1999

Contact: Jill Braunstein at (202) 452-8097

WASHINGTON, DC -- As a bipartisan commission considers how to secure Medicare for the future while faced with rising health care costs and an increasing number of beneficiaries, a National Academy of Social Insurance panel released a report today stressing that an informed discussion about social, political and economic issues must be the first step in improving Medicare on both a long-term and short-term basis.

"There is a real concern that actions may be taken to reform pieces of Medicare by addressing short-term goals without addressing or even understanding the principles on which Medicare is based," said Rosemary A. Stevens, professor of History and Sociology of Science at the University of Pennsylvania, who chaired NASI's blue-ribbon Study Panel on Medicare's Larger Social Role. "The commission also needs to consider the intertwining of Medicare with other public and private health care and income support programs, as well as the possible long-term consequences of actions based on short-range vision."

The Panel, whose membership reflected a wide range of academic and professional disciplines, began its work in early 1997 by commissioning papers and conducting targeted research, including a national poll in the summer of 1997 and a series of 10 focus groups in the winter of 1998. It reports that Medicare is a remarkably popular program, in large part because the public understands that the risks facing the Medicare-eligible population cannot be addressed in the private health care market at a price that most people can afford.

The Panel reconsidered the risks Medicare was created to address – risks related to longevity, health, the structure of insurance and economic markets, and the unpredictability of the nature and costs of health care technology – before concluding that the social insurance principles of Medicare remain sound and necessary.

None of the reform options now being debated can increase the financial security of beneficiaries while simultaneously solving the problem of health care costs in an aging society, the report concluded. The Panel reached this conclusion by presenting a set of criteria – financial security, equity, efficiency, affordability, accountability, political sustainability, and individual liberty – that can help to focus systematic evaluation of Medicare reform options. The report illustrates the use of the criteria in its discussion of a range of reform options, including incremental changes such as increasing beneficiary cost sharing, raising the eligibility age, or expanding benefits or modernizing Medicare's administrative structure. It also considers more fundamental restructuring options, including structured competition (with and without defined benefits) and individualized medical insurance. The evaluation criteria help identify costs and benefits of specific reform options. Among the most significant:

Incremental reforms that increase beneficiary cost-sharing could undermine the basic financial protections the program was intended to provide. Increasing revenues or reducing benefits would not address the fundamental system-wide problem of health care costs, and how decisions about access and quality of care are to be made.

Structured competition and individualized medical accounts would transfer some risk for health care costs from the government to individuals. Beneficiaries would have no assurance that they would be able to buy health insurance that provides the access to care and protection against financial catastrophe that Medicare was created to provide.

To enable beneficiaries to make good choices, and to be accountable to taxpayers, restructuring options that depend on the market to control health care costs may require new local, regional and national information and oversight systems. This could increase, rather than decrease, government involvement in health care markets.

Asserting that much of the public debate about Medicare has neglected the basic value of Medicare, the Panel urges policymakers and the public to first step back and review what the program has accomplished. Medicare has created a sense of security and acceptance of mutual obligation, while providing important financial and social security not only to the elderly and disabled, but to their families across generations. The Panel urges that the debate about Medicare reform be grounded in an understanding of the program's larger importance to American society.

The Panel concluded that the major problem facing Medicare is the growth in the amount and cost of health care services used to sustain and improve individual health. Medicare spending per beneficiary, adjusted for inflation, has increased more than 200 percent in the last 20 years (to over $5,200 in 1996 dollars). Even with this increase in public outlays, however, beneficiaries' financial security is increasingly threatened by the costs of Medicare premiums, copayments and deductibles, and/or supplemental insurance, and costs not covered by insurance, primarily prescription drugs. Non-institutionalized beneficiaries aged 65 and older are now spending, on average, 19 percent of their household incomes on health. More than half of all Medicare beneficiaries have household incomes under $25,000 per year.

The Panel found no evidence suggesting that the technology-driven costs of providing health care will slow over time. Rather, it concluded that it is more likely that every generation will find that health care can do more, and therefore will cost more, than they anticipated or could reasonably be expected to pay in retirement.

The report also addresses a range of issues related to the multiple roles Medicare has assumed in the American health care system, including its role in providing public goods such as graduate medical education, and support of disproportionate share and rural hospitals, and its role in managing the health care it pays for. The Panel urges that medical education and hospital subsidies be addressed as separate public policy questions, but that the debate about the future of Medicare include a serious examination of the ways in which Medicare's administration and statutory authority should be structured to allow the program to be able to manage health care – as the private sector has tried to do – but with a much clearer focus on serving the needs of beneficiaries, rather than just cutting costs. This would require a significant investment in research and infrastructure to support collaboration, experimentation, and oversight.

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Copies of the Panel's report, "Medicare and the American Social Contract," are available from the National Academy of Social Insurance. NASI convened the Panel of experts working in business, government, labor and applied research and academia, as well as the fields of history, philosophy, political science, medicine, economics, sociology, business management, and social work. The panel's work was supported by grants from The Robert Wood Johnson Foundation, The Pew Charitable Trusts, The California HealthCare Foundation, and Kaiser Permanente.


NASI is a nonprofit, nonpartisan organization of the nation's leading experts on social insurance. Its mission is to conduct research and enhance public understanding of social insurance, develop new leaders, and provide a nonpartisan forum for exchange of ideas on important issues in the field of social insurance.
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