Is there a need for Medicare Reform?

The Medicare program is facing a serious crisis because it does not adequately cover patients for prescription drug costs, preventative health care and hospital stays. Without something being done to correctly address this issue, many elderly Americans will suffer higher premiums while their quality of care will diminish. There has been some discussion concerning the current problem. In President Bush’s speech on January 28, 2003, he addresses Medicare reform by saying, “[s]eniors who want more coverage will be able to choose an enhanced form of Medicare. This option will include full coverage for preventative care, a comprehensive prescription drug benefit, protection against high out of pocket costs, and extra help for low income seniors to be able to get the drug benefits”(Charatan). Supporters of this healthcare package feel that it will finally give seniors the healthcare benefits that they need while providing them with prescription drug coverage. Opponents of this healthcare package feel that the structure of the bill will privatize Medicare and ultimately lead to higher premiums in Medicare. Despite one’s views, one must ask how the Medicare program became this way. What has triggered the present state of Medicare both directly and indirectly? Many economists and doctors agree that the cost of medical health care is increasing faster than our economy can support it because the economy has suffered tremendous budget cuts while the cost of healthcare has increased dramatically, and will get worse as the elderly population continues to rise.

The Medicare budget cuts over the years have contributed to the problem because the government does not sufficiently supply the program with the funding it needs to serve its beneficiaries. The Balance Budget Act of 1997 was implemented to reduce the cost of medical bills and tried to hinder medical inflation. The act was supposed to save $115 billion over a five year period from 1998-2002. While the bill was effective for a short period of time, “the average per-capita household increase for the Medicare segment from 1994 through 1997 was 5.9 percent, in 1998 the increase was -2.01 percent” (Cecil). The amount of money that was spent per household to help with Medicare patients stayed constant at 5.9 percent between 1994 through 1997, but it has caused a deficit of 2.01 percent causing Medicare to help cover the cost. The bill was not successful because it did not save the $115 billion for the federal budget, but actually caused the Medicare program to spend more money on skilled nursing facilities and managed care. One of the main reasons that led to the Balance Budget Act was the concern about Medicare overpayments in two categories: post acute care (home health care and skilled nursing facilities) and Medicare managed care (a type of package that allows patients to choose an outside plan for their Medicare coverage). The overpayment in costs may have triggered the bill because “[h]ome health expenditures increased from $3.5 billion in 1990 to nearly $17 billion in 1996, and during the same period SNF payments increased from $2.5 billion to over $11 billion”(Silversmith). The Medicare managed care system had an increase of $14.5 billion and the skilled nursing facilities had a $ 9.5 billion increase in only six years. This cause combined with the cost of rising health care has hurt the Medicare because the cost of prescription drugs is steadily rising, and budget acts continue to affect the amount of money Medicare can receive.
The rising cost of healthcare including the increase in cost of prescription drugs has had a significant effect on the disbursements that Medicare can give to its recipients. With the improvement of drug technology to produce new drugs, the cost of prescription drugs has “increased from less than 10% of total health-care costs to 15%-plus of the total health-care bill–and could approach 20% of total health-care costs in the future”(Cain). This trend of rising health care cost has caused the Medicare program to stop covering its recipients because but they do not have the resources to cover all of them. The prescription drug problem is caused by the quantity of new drugs being put on the market, the amount of elderly population using these drugs, and the advertising involved in trying to promote these new drugs. For the year of 2001, drug companies “spent $30.3 billion on research and development and $19.1 billion on all promotional activities, including $2.7 billion on direct-to-consumer ads” (Rubin). The reason why drug companies are raising the cost of prescription drugs is that they must make back the money that was spent on developing and researching new drugs. For example, two of the 10 most popular drugs of 2002 were Zoloft and Paxil (antidepressant drugs). While these new drugs are effective, a study that was conducted by Food and Drug Administration (FDA) gave the regular drug to the patients and a new drug without telling them which one was which. The survey concluded that both drugs did equally well, but the doctors are more likely to prescribe
the more expensive new drug than the old because of advertising. The rise in health care coupled with the amount of elderly rising limits the amount of disbursements that Medicare can give to recipients.

Since the baby boomers are getting older, the cost of coverage has to meet the demands of the increasing elderly population. The cost of health care is continuously rising 15% each year, yet the amount of money that Medicare can offer doesn’t match the increases in health care costs (Cain). The decreased in the coverage is caused by overwhelming number of baby boomers enrolling in Medicare. When the Medicare program was first enacted in 1968, it provided its beneficiaries with 12.4 billion in coverage, while in 2000 the program offered it beneficiaries 301 billion dollars. In relationship to proportion, the program in 1968 offered 28% in coverage while the 2000 program only offered 20% in coverage of medical expenses (Foster 15). The amount of Medicare recipients who have in 1997 was “458,000 new Medicare beneficiaries” but estimates show that it will reach a new “1,686,000 people” in the next 20 years (Harrop). There is a correlation between the amounts of money Medicare can give and the amount of coverage. The population increase of elderly persons who need drugs will continue to harm Medicare because with the improved medical drugs these new beneficiaries live longer and will collect more money over the years.

The Medicare program needs to be reformed, but before this takes place one must analyze the factors that contribute to the present state of Medicare. The medical inflation that has accumulated each year has not matched the elderly population which continues to rise. The money budgeted to Medicare in both past and present will continue to weaken Medicare’s effectiveness because it takes away the resources. With the introduction of new prescription drugs, the amount of money that Medicare needs to support a prescription drug benefit program is rising. The long term affect of not addressing this problem will result in the loss of Medicare effectiveness, and one will pay higher premiums because of budgets and prescription drugs. The amount of people will continue to climb and make it difficult to receive adequate support. Based on projections of Medicare spending, if there are not measures taken to solve this problem, them the whole program may be jeopardize because the program needs more resources to continue to have the Medicare program.

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