Section I - III

I. Overview

Early in the 21st century, the Medicare program is expected to experience significant and increasing financial stress. Starting around 2010, the retirement of the "baby boom" generation will accelerate growth in the elderly population. This larger elderly population, many of whom will experience greater longevity, will add to the existing upward trend in cost per Medicare beneficiary, resulting in large and possibly unsustainable Medicare costs. As a result of these projections, the United States Congress created the National Bipartisan Commission on the Future of Medicare (the "Bipartisan Commission")(2) to find ways to strengthen the Medicare program and prepare it for the retirement of the "baby boomers."

The Bipartisan Commission was charged with developing a proposal that addresses the financing of the entire Medicare program and issued a "call for solutions," inviting interested parties to submit ideas for restructuring Medicare for the future. In September 1998, ANA testified before the Bipartisan Commission regarding its historical support for and positions on the Medicare program. Since then, ANA has developed this proposal for consideration by the Congress, the Administration, and the general public.

II. Size and Nature of Medicare's Fiscal Problems

A. Rates of Growth

The 1998 long-range forecasts of Medicare spending produced by the Trustees of the Medicare Part A and Part B Trust Funds project that, absent any changes, over the next 75 years Medicare will grow from 2.6 percent to almost 7 percent of the U.S. economy.(3) For comparison, the entire Federal budget accounts for just 20 percent of the U.S. economy, a level that has remained fairly static over the past three decades.(4) To illustrate the extent of financing that the Medicare program would need to support such a level of funding, the Trustees calculate the taxes that would be required, providing a single summary measure of projected Medicare financing needs.(5) For Part A, the Trustees calculate that an immediate increase in the hospital insurance payroll tax from 2.9 percent to 5.0 percent would put the Part A Trust Fund on a sound basis for the 75 year projection period.(6) For Part B, there is no dedicated payroll tax, but the Trustees note that Part B spending would consume approximately one-quarter of all personal and corporate income tax receipts by the end of the projection period.(7)

Taking the Trustees' projections as the spending baseline, there is little available data or agreement regarding the level of cost reductions that would be required to address Medicare's fiscal needs in the 21st century.(8) In part, this is true because even a small change in Medicare's benefits structure or costs could have significant effects on future spending, making estimates of future spending highly uncertain.(9) Largely, however, this is true because a decision regarding the requisite level of cost reductions depends on the willingness of policymakers to seek additional revenue, a fundamentally political decision.

B. Impact of "Baby Boom" Generation

Although some of the future cost growth of Medicare will result from the aging of the "baby boom" generation, growth in the number of elderly (including increased longevity) is not the only or primary reason for the projected growth in Medicare costs. At the peak of the "baby boom" retirement (circa 2020), about one-third of projected Medicare Part A cost growth will be due to the increase in the number of enrollees (2.7 percent per year). The remaining two-thirds of cost growth will be due to increasing costs per enrollee.(10) The retirement of the "baby boom" generation will add to the underlying trend in Medicare cost growth and heighten the financial problems.

The "baby boom" generation -- more ethnically, economically, and educationally diverse then previous generations -- will also likely value services that are different from those offered by the current Medicare program. For example, many "baby boomers" have become accustomed, through managed care programs now available in many workplaces, to the easy availability of preventive services, alternative approaches to care, and provider choice. Their willingness to accept the constraints of the current Medicare program as they become the program's beneficiaries should be an important consideration in ensuring the continued political viability of Medicare and the level of financial contribution that can reasonably be expected from beneficiaries.

III. ANA's Medicare Positions

A. Historical Positions

ANA has historically supported both the philosophical underpinnings of the Medicare program and the assumptions behind its existing financing mechanism. As the nation's first health professionals' association to endorse the creation of Medicare in the 1960's, ANA articulated early and strong philosophical support of Medicare. In a 1965 ANA Statement, ANA expressed its support for providing health services through a broad social insurance system:

In 1966, health insurance for the aged will become a benefit of the nation's social insurance system. The American Nurses' Association was an early supporter of this historic social legislation which has become law with passage of the Social Security Amendments of 1965.

It is significant that nurses, as the largest single group of professional persons providing health care for the American people, have given their support to the principle of providing health insurance for the aged through the social security system. Nurses must now help to assure that health services provided through this legislation are of high quality.(11)

ANA has also always supported the philosophy of Medicare's financing system: that Medicare is and should be:

  • a broad-based social insurance program that is available to all eligible individuals regardless of income;

  • subsidized through general tax revenues of the Federal government;

  • partially financed by a required premium from beneficiaries, with a mechanism for subsidizing low-income beneficiaries; and

  • further financed by a dedicated payroll tax, levied in conjunction with Social Security taxes, on both employers and employees.

Some aspects of these assumptions are being challenged in light of the financial problems looming under the present system. Inasmuch as the Bipartisan Commission's work may be considered by the 106th Congress, ANA has re-examined its position on the Medicare program and its various component parts so that nursing will be able to advocate both for positive and beneficial aspects of the current system and also for important reforms.

B. Underlying Premises

ANA developed its recommendations after considering how the current system works, how beneficiaries interact with the system, and what benefits and/or problems various alternatives are likely to bring:

First, ANA believes that most Americans support the current Medicare program and want it to be viable and successful. ANA also believes that most Americans want any reforms to make the system simpler to understand and to use.

Second, ANA believes that recent changes in the Medicare program ("Medicare+Choice") which allow for the voluntary replacement of traditional Medicare coverage by health maintenance organizations ("HMOs") have created additional confusion. Under even the most optimistic scenarios for Medicare+Choice, mostcurrent and future beneficiaries will remain enrolled in the traditional Medicare program.(12) Any reform proposal must therefore demonstrate how it would affect costs under the traditional program, or describe how the traditional program would be abolished and replaced with another, less costly program.

Third, since Medicare by itself is only one part of the financing of health care for the elderly, any reform plan must account for other avenues of financing this health care. Nearly 90 percent of beneficiaries already have some form of secondary insurance (i.e., employer retiree benefits, Medigap, Medicaid) to cover the costs that Medicare does not. The widespread purchase of Medigap insurance, for example, despite its significant premiums and its frequently inadequate benefits (e.g., prescription drug coverage is minimal in even the best policy), demonstrates beneficiaries' desire for such coverage. ANA believes that this interest in purchasing secondary insurance is likely to continue.

Finally, ANA believes that any reform proposal must appropriately contain growth in cost per beneficiary. Private plans constrain costs either by requiring enrollees to pay part of the cost of each service, or by "managing" or "coordinating" the delivery of care, or both. The traditional Medicare program has neither of these approaches for controlling its costs: it has no formal approaches to management of care across settings or among providers. In effect, the traditional Medicare program has been, for the average beneficiary, an unrestricted and unmanaged fee-for-service insurance plan with no direct out-of-pocket co-payment liabilities. ANA believes that to control Medicare's costs appropriately, the Medicare program must seek both value and quality in health care services and delivery. The President's Advisory Commission on Consumer Protection and Quality in the Health Care Industry was emphatic in its call for a national commitment to improving the quality of health care throughout the system and recognized the crucial role of both public and private purchasers of health care services and insurance products in achieving this goal. The importance of the Medicare system in leading the effort to ensure high quality care for all Americans cannot be overstated, and nursing would oppose any proposal to reform the Medicare system that jeopardizes quality in an effort to reduce costs.

C. Strategies Underlying ANA Recommendations

ANA opposes limiting access to Medicare based on income or placing undue financial burdens on Medicare beneficiaries; therefore, ANA recommends a combination of approaches for containing current and future costs of the program:

  • The Medicare program should implement case management techniques across a wide variety of settings, seeking to identify and manage potentially high-cost medical events. Such events include hospitalization, institutionalization in a nursing home, end-of-life care, and high-cost chronic conditions such as congestive heart failure, chronic obstructive pulmonary disease, and diabetes.

  • The Medicare benefit package should be modestly expanded to allow for sensible, efficient, early care, including coverage of outpatient prescription drugs, additional preventive benefits, and a "stop-loss" provision that limits beneficiaries' annual out-of-pocket costs.

  • Numerous traditional and non-traditional cost-savings approaches should be applied to traditional Medicare, including selected reductions in payment and program restructuring.

  • The Medicare program will require additional revenue, which ANA believes should come from reordered priorities within the existing Federal budget, increased taxes, and reduced taxpayer subsidies for those beneficiaries who can afford to pay more.