Medicare Reform:

Observations on the President's July 1999 Proposal

T-AIMD/HEHS-99-236: Published: Jul 22, 1999. Publicly Released: Jul 22, 1999.

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Paul L. Posner
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Pursuant to a congressional request, GAO discussed the President's recent proposal to reform Medicare.

GAO noted that: (1) the President's proposal contains programmatic reforms that reflect a good faith effort to advance the reform debate; (2) it provides a baseline for further debate and consideration of reforming Medicare; (3) as such, it is an important step in the goal of reaching a national consensus about how the nation is going to deal with the explosive cost of medical care for the elderly population in the decades to come; (4) Congress and the President may ultimately decide to include some form of prescription drug coverage as part of Medicare; (5) given this expectation and the future projected growth of the program, some additional revenue sources may in fact be a necessary component of Medicare reform; (6) the most critical issue facing Medicare is the need to ensure the program's long-range financial integrity and sustainability; (7) the 1999 annual reports of the Medicare Trustees project that program costs will continue to grow faster than the rest of the economy; (8) given the size of Medicare's unfunded liability, it is realistic to expect that reforms to bring down future costs will have to proceed in an incremental fashion; (9) ideally, the unfunded promises associated with today's program should be addressed before or concurrent with proposals to make new ones; (10) to do otherwise might be politically attractive but not fiscally prudent; (11) any potential program expansion should be accompanied by meaningful reform of the current Medicare program to help ensure sustainability; (12) to qualify as meaningful reform, a proposal should make a significant down payment toward ensuring Medicare's long-range financial integrity and sustainability; (13) the President's latest proposal is projected to virtually eliminate the publicly held debt by 2015; (14) such an initiative would provide a substantial fiscal dividend by reducing interest costs, raising national savings, and contributing to future economic growth; (15) this initiative would help better afford future commitments, but it would not alone be sufficient; and (16) reforms reducing the future growth of Medicare as well as Social Security and Medicaid are vital under any fiscal and economic scenario to restoring fiscal flexibility for future generations of taxpayers.

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