Medicare Reform:

Issues Associated With General Revenue Financing

T-AIMD-00-126: Published: Mar 27, 2000. Publicly Released: Mar 27, 2000.

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Pursuant to a congressional request, GAO discussed the use of general fund revenues as part of Social Security and Medicare reform, focusing on general revenue financing of the Medicare program.

GAO noted that: (1) a consensus appears to be emerging that substantive financing and programmatic reforms are necessary to put Medicare on a sustainable footing for the future; (2) the current Medicare program, without improvements, is ill-suited to serve future generations of seniors and eligible disabled Americans; (3) on the other hand, the program is fiscally unsustainable in its present form, as the disparity between program expenditures and program revenues is expected to widen dramatically in the coming years; (4) on the other hand, the program is outmoded in that it has not been able to adopt modern, market-based management tools, and its benefit package contains gaps in desired coverage; (5) thus, while financial questions loom, pressure is mounting to update Medicare's outdated benefit design; (6) however, doing so carries with it the potential to exacerbate Medicare's spending trajectory; (7) given the aging of the nation's society and the increasing cost of modern medical technology, it is inevitable that the demands on the Medicare program will grow; (8) the National Bipartisan Commission on the Future of Medicare noted that the program will require additional resources as the percent of the population eligible for benefits increases; (9) one major uncertainty in Medicare's future financing needs, the Commission noted, is the inability to predict the evolution of the health care delivery system or technology's impact on health care costs; (10) at the same time the Commission emphasized the urgent need for reforms that will slow the growth in Medicare spending; (11) given the size of Medicare's projected funding needs, it is realistic to expect that reforms to bring down future costs will have to proceed in an incremental and iterative fashion; (12) comprehensive Medicare reform cannot, once implemented, be put on automatic pilot; (13) recent experience implementing changes shows that reform is a dynamic process requiring vigilance and flexibility; (14) the Comptroller General testified before Congress on the financing of the Hospital Insurance trust fund that additional general revenues may very well be necessary, but such a change would represent a marked departure from payroll tax financing with implications that warrant explicit and serious debate; and (15) leading reform proposals that address comprehensive reform such as those of the President and Breaux-First include the use of general funds as part of their financing mechanism.

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