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March 17, 2005

Actuaries Urge Further Action to Address Medicare's Financing Woes

medicare.jpg With the nation's attention focused on Social Security reform, few are mentioning that the Medicare program is in even more serious financial trouble. The 2005 Medicare Trustees Report to be released later this month is likely to mirror last year's report, indicating
that the program faces significant long-term financing problems.

Although the passage of the Medicare Modernization Act of 2003 made major changes to the Medicare system, there are still many concerns that lawmakers need to address. "Medicare still faces long-term financial problems, and if Congress and the president do not act, the program will not have enough money to pay full benefits in the future," said Cori Uccello, Academy senior health fellow.

The American Academy of Actuaries has released the issue brief Medicare: Next Steps, which outlines four areas of concern with the Medicare program, with Medicare's financing problems heading the list. The fund for Medicare's Hospital Insurance (HI) program, which pays for inpatient hospital care and is financed primarily through earmarked payroll taxes is expected to run out of money by 2019. Medicare's Supplementary Medical Insurance (SMI) program pays
for physician and outpatient care and the new prescription drug benefit program will remain solvent, but only because its financing is reset annually to meet projected future costs.

Medicare expenditures also will place increasing strains on the federal budget as payroll taxes cover a decreasing share of Medicare spending and general tax revenues will cover an increasing share. Increased spending for Medicare may eventually crowd out funds for other federal programs. Combining Medicare with Social Security spending further highlights the strain these programs place on the economy. "Tackling Social Security reform without addressing Medicare's financial problems ignores the nation's more pressing
challenge," Uccello said.

Further action should also be considered for these other areas of concern: balancing access to care while avoiding unnecessary utilization, private sector competition strategies, and insurance needs of individuals aged 55 to 64.

To see the issue brief, go to >http://www.actuary.org/pdf/medicare/next_feb05.pdf

The American Academy of Actuaries is the nonpartisan public policy organization for the U.S. actuarial profession. The Academy provides independent analysis to elected officials and regulators, maintains professional standards for all actuaries, and communicates the value of actuarial work to the media and public.

Posted by Tom Troceen