Fed Chief Says Delay May Be Costly for Medicare Reform


Federal Reserve Chairman Alan Greenspan on Monday urged the newly created Medicare commission to act quickly in proposing structural changes to the federal health care program for the elderly, saying “delay could be costly.”

“Preemptive action could avoid wrenching disruptions to our federal medical programs and our economy,” Greenspan said. “The longer we wait, the more difficult the adjustments.”

As the leadoff witness for the bipartisan commission, Greenspan offered no specific policy recommendations but raised an array of provocative issues that he said the group will have to confront, including the possible rationing of medical services.

Recalling his own successful stewardship of a Social Security commission in 1982-'83 that spearheaded reforms in the federal retirement program, Greenspan urged the 17 Medicare commissioners to similarly cultivate broad support for their recommendations by keeping the White House and members of Congress fully engaged in “parallel policy discussions.”


Congress created the commission last year to come up with long-term changes that will keep Medicare afloat as it comes under financial pressure in 2010 when the first of about 77 million baby boomers reach the eligibility age of 65. The commission is scheduled to make its recommendations to the White House and Congress a year from now.

“Medicare is solvent for the next 12 years and will continue to provide quality health care for the 40 million Americans who rely on it today,” said Sen. John B. Breaux (D-La.), chairman of the National Bipartisan Commission on the Future of Medicare.

But it is the commission’s job, he added, to figure out “how to best ensure Medicare continues to provide health insurance for older Americans well into the next century.”

Another expert who testified was Dr. John Eisenberg, head of the federal Agency for Health Care Policy and Research. He urged additional research into the cultural differences in health care consumption between non-Latino whites and ethnic and racial minorities. Whereas minorities account for fewer than 25% of Medicare recipients today, they will make up 47% of beneficiaries by the middle of the next century, according to Eisenberg.


During two hours of testimony, Greenspan several times praised the often controversial cost-cutting practices of the managed care industry--and pointedly noted that Medicare “has not kept pace.” But unless Medicare begins to address such disparities with the private sector, he warned, “political support for Medicare may well begin to wane, especially if escalating Medicare costs force tax increases or reductions in other government programs that serve important functions.”


Greenspan raised the prospect of rationing by telling the commissioners: “Perhaps the hardest issue with which you will have to grapple is the very real possibility that the projected demands by Medicare recipients exceed a realistic estimate of our budgetary capabilities.”

Such pressures will come from the massive demographic changes that Greenspan outlined.


Currently, 12.5% of the U.S. population is 65 or older. By 2030, when the last of the baby boomers will have turned 65, the elderly will account for 20% of the population. Those older than 65 have medical costs nearly four times that of younger Americans.