The Bottom Line on Evaluating the Fiscal Soundness of Medicare

The financial viability of Medicare has emerged this year as a leading presidential and congressional campaign issue. In its timely new study Evaluating the Fiscal Soundness of Medicare, the American Academy of Actuaries' Medicare Reform Task Force concludes that Medicare faces urgent financial problems that demand action. Among the task force's major findings and recommendations:

• Medicare's financial problems are already evident, and they will accelerate around 2010 when baby boomers start becoming beneficiaries in large numbers. The total cost of Medicare, now about 2.3 percent of GDP, could double to reach 4.6 percent of GDP in 2035 — a level that may be unaffordable.
  
  
• Medicare beneficiaries' premiums are expected to rise more rapidly than the Social Security benefits from which they are deducted, and the government contribution will impose a huge burden on future generations of taxpayers.
  
  
• Congress should act now to deal with Medicare's financial problems. Failure to act will make it harder to maintain the programÕs fiscal stability and will necessitate more extreme financial reforms later.
  
  
• Proposals to reform Medicare should be evaluated based on their impact on both the short-range and long-range fiscal stability of the program.
  
  
• The most promising Medicare reform proposals include more cost sharing by beneficiaries and the increased use of managed care and competitive bidding.
  
  
• The least promising Medicare reform proposals include lowering payments to providers, increasing the eligibility age for Medicare, and requiring employer plans to cover retirees.

To aid policy-makers and others, the American Academy of Actuaries is issuing three studies on Medicare reform issues this year. The first study, Medicare Reform: Using Private-Sector Competition Strategies, has already been published, and the third study, Providing Prescription Drug Coverage for Medicare Beneficiaries, is forthcoming.

For more information, please contact Academy Health Policy Analyst Holly Kwiatkowski (Kwiatkowski@actuary.org, 202-223-8196).

July 2000

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