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Panel of Bipartisan Health Experts Agree: U.S. Must Consider New Revenues For Medicare's Long Term

For Immediate Release:
September 15, 1999
Contact: Jill Braunstein



WASHINGTON, DC – A blue-ribbon panel of Medicare experts has unanimously concluded that new revenues must be part of the debate to secure Medicare's long-term funding. None of the plans now being considered would produce savings sufficient to sustain a program similar to what Medicare now guarantees according to the bipartisan group convened by the National Academy of Social Insurance (NASI).

The NASI panel's analysis showed that with no changes to Medicare's benefit package or structure, taxpayer contributions to the cost of Medicare would need to more than double by 2030. Today, taxpayer financing in the form of payroll taxes and income taxes is equal to about 2.5 percent of the economy (the gross domestic product, or GDP). If no changes are made, actuaries project that in 2030 this contribution will have to rise to about 5.1 percent of GDP.

Because tax revenues grow at about the rate of GDP, society could absorb some of the increase in Medicare through growth in the economy without any increased contributions from taxpayers or beneficiaries. The revenue gaps identified by the panel, however, are over and above growth in the economy.

"It is important that lawmakers discuss ways to ensure that Medicare operates as efficiently as possible and provides valuable benefits to those it serves," said panel member Sheila Burke, Executive Dean of Harvard University's John F. Kennedy School of Government and formerly a top advisor to Sen. Robert Dole (R-Kan.). "But because all the Medicare reform options being discussed so far would not eliminate the need for new revenues, it is vital to add financing to the debate."

The panel found that one of the leading reform plans, put forward by Sen. John Breaux (D-La.) and Rep. Bill Thomas (R-Calif.), would reduce Medicare costs significantly but would close only about one-fourth of the gap between Medicare spending and expected revenues. Even dramatic approaches that envision savings never before achieved in Medicare would leave a significant funding gap, the panel concluded. Moreover, both Republicans and Democrats have put forward proposals to add coverage for prescription drugs. This new benefit would add to Medicare costs and the need to consider additional sources of revenue for the program.

Under the Breaux-Thomas plan, which would seek greater efficiencies by making Medicare more like the health insurance most working people have, actuaries project that the taxpayer contribution to Medicare in 2030 would need to be about 4.5 percent of GDP, less than the 5.1 percent projected with no changes, but still 180 percent of what taxpayers finance today. Even under an illustrative proposal to hold per-beneficiary Medicare spending to the rise in the general level of inflation (the consumer price index, or CPI), the gap would remain, and the taxpayer contribution would need to rise to about 150 percent of the current level unless additional benefit cuts or beneficiary cost-sharing were considered. The panel noted that holding Medicare growth to the CPI is a level of savings which has never before been achieved.

"We concluded that none of the changes being discussed to obtain savings for Medicare would be sufficient to sustain the program in a form similar to what is now guaranteed without additional revenues," said Marilyn Moon, an economist at The Urban Institute and chair of the panel. "The panel's analysis was deliberate and long, but we ultimately reached this consensus. As policymakers search for ways to reform Medicare and reign in the cost of the benefits, additional revenues must be part of the discussion."

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The National Academy of Social Insurance is a nonprofit, nonpartisan organization made up of the nation's leading experts on Medicare, Social Security, and other social insurance programs. The Study Panel on Medicare Financing, which produced the report, is one of four committees whose work makes up the Academy's initiative on Restructuring Medicare for the Long Term. The Robert Wood Johnson Foundation provided grant support for the analysis.

Medicare Brief #5 - The Financing Needs of a Restructured Medicare Program
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