For weeks, Republicans and Democrats have haggled over whether GOP budget proposals call for real Medicare cuts or merely a slowing of the growth of spending on the program.
The Republicans argue that Medicare outlays will actually increase. For example, the GOP plan introduced by Senate Budget Committee Chairman Sen. Pete Domenici (R-N.M.) includes an increase in gross annual Medicare spending.
But a closer examination of the budget shows that on a per-beneficiary basis, the yearly increases permitted under the Republican plans are not likely to cover rising medical costs and increases in volume and intensity resulting from the aging of the Medicare population.
Should that happen, provider groups say it will lead inevitably to reductions in benefits or provider reimbursements.
"These proposed Medicare spending reductions may, in fact, be reductions in the rate of growth and not cuts in spending, but let's be clear. The spending proposals being considered are very likely to translate into cuts-cuts in services, cuts in personnel and, for many hospitals, closure," Richard Davidson, president of the American Hospital Association, told a congressional panel last week.
But Senate Republicans counter that, under their plan, Medicare would still be the fastest-growing program in the federal government. They also point to such programs as the California Public Employees Retirement System, which has kept its cost increases to less than 2% a year recently, as proof that it's possible to keep costs down in a reformed Medicare system.
The Congressional Budget Office estimates that the federal government will spend about $160 billion on Medicare in 1995. According to Republican Senate Budget Committee staff, that translates to an average of $4,350 per beneficiary after subtracting Medicare Part B premiums paid by beneficiaries.
The Senate Budget Committee plan, which was passed by the panel 12-10 earlier this month, includes Medicare spending restraints of $256 billion over seven years.
At the end of that time, in year 2002, Medicare will spend an average of $6,300 per beneficiary, according to Republican Senate Budget Committee figures.
Such an increase represents a 49% overall spending increase per Medicare beneficiary during the seven-year period, an average of 5.4% per year, according to budget committee calculations.
While an annual 5.4% increase may sound like a substantial gain in Medicare reimbursements, more than half that hike, or 3.4% per year, would go to cover projected inflation, CBO figures show.
There are other increases in Medicare spending that are beyond the control of even a reformed system.
For example, HCFA estimates that Medicare spending rises by 1% each year because of the increases in volume and intensity that occur as the Medicare population ages.
After netting out the rate of general inflation and the increases in volume and intensity, Medicare would expand by an average annual rate of less than 1% from 1996 to 2002.
Such an analysis doesn't consider the rate of medical inflation. According to the Prospective Payment Assessment Commission, medical inflation has been about equal to the rate of general inflation during the past year. However, in previous years it has been as much as twice the rate of general inflation.
Increases in Medicare and private-sector spending per beneficiary, 1976-2000
Medicare Private sector
1976-1984 14% 14%
1985-1991 7 10
1992-1994 10 7
1995-20001 8 7
1995-20002 5.4 -1 Projected without changes included in Senate
Budget Committee plan.
2 With changes included in Senate Budget Committee plan. No projection made for private-sector expenditures.
Sources: HCFA, Republican Senate Budget Committee