Our entitlement programs in trouble

There is no question: The financial future of our Medicare, Medicaid and Social Security programs are in jeopardy. Those "entitlement programs" will see spending cuts of $208 billion over the next five years, if the 2009 National Budget proposed Monday by President George W. Bush is approved.

Bush said about the huge reductions, "Once again, we've proposed specific reforms and specific measures. And Congress needs to come up with its own ideas. And Congress needs to respond to these looming deficits as a result of unfunded liabilities inherent in Social Security and Medicare. Our Budget does that. Our Budget protects America and it encourages economic growth. Congress needs to pass it."

That was part of the message to Congress when he unveiled a $3.1 trillion Budget on Monday. He added that the biggest challenge to the Federal Budget is "unsustainable growth in entitlement spending." Bush said that we must be sure we have an obligation that is sound for our children and grandchildren.

"If we do not address this challenge, we leave our children three bad options: huge tax increases, huge deficits or huge cuts in benefits," Bush told Congress.

The President said that his Budget works to slow the rate of growth of the entitlement programs in the short term, which will save the $208 billion over five years. The step alone would reduce Medicare's 75-year unfunded obligation by nearly one-third, according to Bush.

A big part of the concern about the financial future of Medicare, Medicaid and Social Security is the steady growth in the population of citizens age 65 and older. In 1950, about 8 percent of the population was 65 or older. Right now, it's about 12.5 percent. It's projected to climb to more than 20 percent by the year 2050.

Since 1960, health care costs have grown 2.7 percentage points faster per year than the economy as a whole. Average annual growth is more than 6 percent, outpacing overall inflation. And you think the cost of gasoline has gone up.

Those two factors — the aging population and cost of health care — drive the spiraling costs of entitlement programs. Figure into that the decline in the working population relative to the retired population.

In 1966, Medicare and Medicaid accounted for only 1 percent of all Government expenditures, but now they account for 20 percent. The Medicare program, established in 1965, offers health care services to individuals aged 65 and older and certain people with disabilities. In 2007, nearly 44 million people were enrolled in the Medicare program.

By 2030, dedicated revenues are projected to finance only 47 percent of total Medicare benefits, leaving 53 percent of program costs to be funded by general tax revenues. This projected rate of growth in Medicare benefits is not sustainable over the long run.

Currently, Medicare spending is growing at an annual rate of 7.2 percent. The 2009 Budget includes proposals to slow the annual rate of growth in the Medicare program to 5.0 percent. Over five years, these proposals are estimated to produce a total of $178 billion in savings.

Baby boomers like me will soon begin feeling the effects of less money for the entitlement programs. They are those of us who were born between 1946 and 1964. People born in the 40s are at retirement age or closing in on it.

Health care cost growth can be influenced by government policies. And the aging of the nation's population can be predicted with a fair degree of certainty.

According to the 2007 Medicare Trustees' Report, Medicare's dedicated revenues from designated payroll taxes and from premium payments covered 59 percent of benefits in 2006. The remaining 41 percent was financed from general tax revenues.

Competition and efficiency improve care for beneficiaries by encouraging quality and lowering costs. The 2009 Budget proposes to adjust annual provider updates to encourage implementation of best practices that will restrain costs and improve efficiency. The Budget supports payment reforms for providers, such as hospital value-based purchasing, that do not increase Medicare spending and that encourage providers to administer high-quality, efficient care.

In addition, the Budget proposes incentives that encourage high-quality hospital services and reduce medical errors. Also proposed is the introduction of more competition into Medicare by establishing competitive bidding for clinical laboratory services and accelerating the transition to competitive contracts for fee-for-service claims processing.

Consumers are also asked to make better health care choices. The Budget proposes to encourage greater individual responsibility for health care use and costs for high-income beneficiaries, who are most able to contribute to the costs of their coverage.

No doubt, we're in a dilemma. Let your Congressman know of your concerns and perhaps the future of our entitlement programs will eventually be brighter.

Joe Sova is managing editor of the Hungry Horse News.