February 8, 2006 | WebMemo on Health Care
The cost of Medicare is set to explode. Under current law, Medicare spending is projected to jump from $395 billion in FY 2007 to $504.4 billion in FY 2011 and to total roughly $2 trillion over that same period.
In his FY 2007 budget proposal, President George W. Bush outlines Medicare savings of just $36 billion over five years, and $105 billion over ten years. This reduction in spending growth is achieved mostly through administrative and regulatory changes in the way payments are made to medical providers, particularly hospitals, nursing homes, and home health agencies. As the editors of The Washington Post observed, these are very limited changes. Nonetheless, say The Post's editors, "…President Bush deserves credit for at least proposing to take modest steps to restrain Medicare's growth…" 
The Bush budget proposal does not even begin to tackle the enormity of the task facing Congress and the nation. Given the size of Medicare's unfunded liabilities, which amount to almost $30 trillion, this modest reduction will not significantly improve Medicare's finances, nor will it provide any serious relief to the taxpayers charged with paying the bill for Medicare's promises to current and future retirees. According to The Heritage Foundation's Center for Data Analysis, fully funding Medicare's promised benefits would require the Medicare payroll tax to jump from today's 2.9 percent to 13.4 percent, with a devastating impact on jobs and economic growth.
Business as Usual
Since the inception of the Medicare program, Congress has relied on a series of bureaucratic "cost-control" schemes-such as tightening price controls and devising elaborate fee schedules-to contain Medicare's rising costs. Based on the commentary accompanying its budget submissions, the Administration's proposed reductions in Medicare spending growth build on this regulatory trajectory. They include:
Time to Get Serious
In recent years, Medicare's unfunded liabilities have gotten worse, not better. Congress and the Administration aggravated the budgetary problems of the Medicare program by adding a massively expensive universal entitlement for prescription drug coverage and failing to enact far-reaching reforms during the Medicare debate in 2003.
In his 2006 State of the Union address, the President called for the creation of yet another commission on entitlements, trying once again to forge a bipartisan consensus on the future of entitlement programs, including Medicare. Perhaps this commission will yield the legislative fruit that previous commissions, such as the National Bipartisan Commission on The Future of Medicare (1997-1999) and the Social Security Advisory Council (1994-1996), did not.
Meanwhile, Congress should not delay in the hope that this commission will put forth a serious reform agenda. Rather, Congress should start to transform Medicare as soon as possible, with a schedule of reforms to be triggered on or before December 31, 2010, the year before the first big wave of baby boomers enters retirement. Broadly, a Medicare transformation should include:
Until the President and Congress commit to such bold action, they demonstrate that they do not yet take the coming entitlement crisis seriously.
Robert E. Moffit, Ph.D., is Director of The Center for Health Policy Studies at The Heritage Foundation.
 "Budget Bravery," editorial, The Washington Post, February 7, 2006, p. A-20.
 See Tracey L Foertsch, Ph.D., and Joseph R. Antos, Ph.D., "Paying for Medicare: An Economic Look at The Program's Unfunded Liabilities," Heritage Foundation WebMemo No. 880, October 11, 2005.
 The Budget for Fiscal Year 2007, Office of Management and Budget, 2006, pp. 21-22.
 See, e.g., Richard Dolinar, M.D., and S. Luke Leininger, "Pay for Performance or Compliance? A Second Opinion on Medicare Reimbursement," Heritage Foundation Backgrounder No. 1882, October 5, 2005.