Future Is OK--and Not So OK

The annual report on the financial condition of Social Security and Medicare raises once again critical issues that are not being adequately addressed in Washington.

Social Security itself remains in good condition, with increasing surpluses of income over payments growing so that there will be no question about the ability of the program to meet its obligations until the middle of the next century. In the short term, the greatest problem will be resisting moves to raid the trust fund for other government purposes, which would be a grave betrayal of future generations of retired Americans. But complacency over the present health of the system must not be allowed to discourage planning for reforms in the next century as the reserves are depleted and eventually exhausted.

Medicare’s future is bleaker, according to the annual assessment of the Social Security and Medicare boards of trustees. The Hospital Insurance Trust Fund, which provides basic acute hospital care for most persons 65 and older, will remain in surplus until the year 2005, three years longer than the estimate of last year, according to the board. It is funded with a payroll tax paid by workers and employers. Despite the extended lease on life implicit in the new report, however, the Hospital Insurance Trust Fund needs urgent attention. There is, above all, doubt that the restraints on hospital expenses implemented since 1983 can be sustained, according to a new study in the Journal of Health Politics, Policy and Law by John Holahan and John L. Palmer of the Urban Institute. The modest short-term improvement in the trust-fund balance should not divert Congress from moving ahead with long-term remedies.

Equally troubled is the Supplementary Medical Insurance program of Medicare, the Part B that covers doctors’ fees. Persons 65 and older obtain this insurance by paying a supplementary premium, currently $24.80 a month, which covers about 25% of the cost. The rest is provided by general federal tax revenue. Because these costs are rising at a dizzying rate, up 14% this year alone, the burden on the federal treasury is becoming more and more onerous--reaching $24 billion in fiscal 1987, a doubling in five years.

Something must be done to check health-care inflation, still increasing at a rate much more rapid than general inflation. But something also must be done to improve the system, because it still fails to provide for the aging population’s growing need for long-term care and for improved quality in other services. Furthermore, beyond the Medicare system itself is the whole unresolved problem of providing health care for more than 30 million Americans under age 65 who have no insurance of any kind.

Medicare’s reforms have profound influence on health care in general, because Medicare finances almost 29% of the hospital care and more than 20% of the physician services in the nation. The prospective-payment system, which pays hospitals a fixed fee per patient according to the particular diagnosis, has greatly reduced the rate of hospital inflation by encouraging shorter stays and shifting many surgeries to outpatient settings. But overall costs, particularly in physician compensation, have remained out of control. Medicare physician spending increased 615% from 1975 to 1987 while the gross national product was increasing only 181%. The issue goes beyond the price of individual services to include a proliferation of procedures.

Congress is close to the adoption of legislation to make a significant expansion of Medicare, providing broader protection for in-hospital care. It is a useful step even though it fails to address the broader question of long-term care. In drawing up the legislation Congress has for the first time devised a Medicare fee structure based on the ability to pay.

The federal government also is working on incentives to bring more Medicare recipients under managed-care programs, including preferred-provider and pre-paid health-maintenance organizations, because of the evidence that they can help reduce unnecessary procedures and hospitalizations, according to testimony on May 13 by Dr. William L. Roper, administrator of the Health Care Finance Administration, which runs Medicare and Medicaid.

Medicare solvency will depend on reforms beyond these, especially if a program to finance long-term care is implemented. It is already clear that payment schemes, however based, will not work effectively unless they are matched with controls that somehow brake health-care inflation.