The demographics and rising health care costs present the key drivers to unsustainable health care budgets in our future.  A few simply statistics demonstrate that this problem is expected to get worse without corrective action:

• The estimated Fiscal Year 2008 total Medicare spending is 15 percent of federal spending and it is expected to reach 20 percent of federal spending, by 2016.
• The estimated Fiscal Year 2008 total federal Medicaid spending is 7 percent of Federal spending.
• If health care cost growth continues at 2.5 percentage points faster than GDP, by the year 2050 health care costs will exceed the costs of all federal expenditures in Fiscal Year 2006.

Future Challenges

Putting Medicare on a fiscally-sustainable path will require some combination of reductions in services, increased cost-sharing by beneficiaries, increasing the eligibility age, bringing more revenues into the system, and improving the cost effectiveness of Medicare and the health care system overall.

To improve the fiscal ‘health' of our health care entitlement programs, elected officials should consider the following:

Scope of benefits:  Medicare should cover a level of care commensurate with the care available to working-age people.  This does not mean that taxpayers must be expected to finance a "high option" insurance plan for all seniors.

Fiscal responsibility:  A fiscally responsible program is one that can reasonably be expected to operate within the resources available to finance it.  A program that assumes a perpetually open spigot from the Treasury is not fiscally responsible.

Income-related cost-sharing:  As a group, seniors enjoy a better income and less poverty than other age groups, particularly children.  Therefore, Medicare's premiums, which help fund Parts B (physician care) and D (prescription drugs), should be geared to income levels.  Currently, premiums cover only 25 percent of costs for Parts B and D. General tax revenues cover the rest.  Payroll taxes only cover Medicare Part A (hospital insurance).  Given the large general revenue subsidy and the need for long-term savings, beneficiaries who can afford to pay more of their fair share should do so.

Efficient provision of medical care:  Whatever new system of medical insurance for the elderly is devised, it should contain incentives for both providers and patients to use resources cost-effectively.  Treatments that have little or no promise of achieving any appreciable improvement in a patient's well-being should not be financed with taxpayer dollars.  This should include the use of "best practices" known to provide highly efficient and effective health care.