Medicare provides access to health care for people 65 and older in the United States.
Congress established Medicare by passing the Social Security Act of 1965 to ensure access to health care for people older than 65 or younger than 65 but with certain disabilities. Medicare is funded by payroll taxes, patient co-pays and premiums, interest on Medicare trust funds and general revenue. Rapidly rising health care costs and an aging population make the program unsustainable in the long-run, according to the Congressional Budget Office.
Finances
Medicare is primarily financed by five sources: payroll taxes, general revenue, beneficiary premiums, interest on trust funds and Social Security tax. Payroll taxes amount to 2.9 percent of taxable income (half from the employee and half from the employer), and together with general income funded more than 80 percent of Medicare in 2006. Payroll taxes fund the Hospital Insurance Trust Fund, and the Supplementary Medical Insurance Trust Fund receives funds from premiums and general revenue. These funds pay for Medicare operations and services.
Baby Boom
Soldiers returning from World War II married and established families en masse, creating the baby boomer generation from 1946 to 1964. When Congress enacted the Social Security Act of 1965, establishing Medicare, record numbers of young people were entering the work force, and the government was able to use a small percentage of their taxed income to pay for Medicare for their parents and grandparents.
Aging Population
The baby boomers established their own families in the 1970s and 1980s, creating a second, smaller baby boom. While the average American couple in the 1950s had nearly four children, the number dropped to two in the 1980s. In 1970, there were 4.6 workers per Medicare beneficiary, declining to 3.7 workers per Medicare beneficiary in 2010, according to PublicAgenda.org. In 2010, Medicare covered 44 million Americans and added an average 550,000 per year; in contrast, aging baby boomers will add 1.6 million per year beginning in 2011, according to a report by the Kaiser Family Foundation.
Rising Costs
Health care costs rise faster than either the GDP or worker income, and the Congressional Budget Office expects that trend to continue. This means that as more people retire, costs become exponentially higher as more people file claims that are increasingly more expensive. In 1960, public and private expenditure on health care was 4.7 percent of GDP, but in 2005 the percentage had risen to 14.9, according to the Congressional Budget Office.
Possibilities
A Congressional Budget Office study examining the rising costs of Medicare and the rising enrollment in the program deemed the current structure unsustainable. The study estimates that by 2019 the Hospital Insurance Trust Fund will be insolvent. Assuming that the government will not exponentially increase funding to Medicare, the study outlines policy possibilities to reduce costs. The first option requires beneficiaries to pay higher premiums and co-pays, cutting the payouts that Medicare for which is responsible. The second option reforms the national health care system to reduce the costs of health care nationally. At least one option offered by the Congressional Budget Office made its way into the 2010 health care reform package; by 2013, individuals making more than $200,000 annually will be charged higher Medicare taxes. Congressional supporters of the reform package, using Congressional Budget Office studies, contended that limits placed on insurance companies to lower costs of health care nationally would ease the strain on Medicare.
Tags: Budget Office, Congressional Budget, Congressional Budget Office, health care, general revenue, health care
