US must find way to pay for costly health-care twins

The nation's mammoth health care program -- medicare and medicaid -- are fast becoming one of the toughest budget problems facing lawmakers this year. These two programs, which spend more than $50 billion a year and are directed at millions of Americans (including 95 percent of all elderly people in the country) are confronted by the same basic problem: health care costs escalating at nearly twice the general inflation rate.

Since both medicaid and medicare for the most part serve what President Reagan would call "the truly needy," it will be hard for the administration to make substantial spending cutbacks. But faced with rising federal deficits and the political impossibility of increasing taxes, both the White House and Congress are moving in this direction.

Both programs were established in 1965 as part of President Johnson's "Great Society." Medicare provides health insurance for about 25 million Americans age 65 and older as part of the social security system. Medicaid sends billions of dollars each year to states which, in turn, provide health services to about 22 million poor, elderly, and disabled persons.

This is the situation with each program:

Medicaid: Expenditures have been rising more than 15 percent a year for the past five years (even though the number of beneficiaries peaked in 1976), and now total more than $25 billion a year -- 55 percent provided by the federal government, the rest from the states. The Reagan administration wants to "cap" the federal share with a 5 percent increase for 1982 and then tie future increases to the gross national product "deflator" (which is somewhat less than the consumer price index).

States are concerned this would cost them at least $1 billion next year, and more as the nunber of elderly increases (41 percent of medicaid payments go to nursing homes).

Both the House and Senate have rejected the 5 percent "cap," although the Republican-controlled Senate has voted for a 9 percent cap in its reconciliation budget bill for 1982.

To help offset the budget cuts, both the House and Senate have approved measures giving each state greater flexibility in administering medicaid. For example, a state might be able to restrict recipients to choosing physicians or facilities that hold down costs or limit eligibility. States also would like to be able to select "alternative services" such as home care instead of more expensive hospitals or nursing homes.

Medicare: The Social Security Administration board of trustees this week reported that the medicare trust fund will be "exhausted before the turn of the century," even under the most optimistic economic assumptions. Medicare payments in 1980 jumped nearly 20 percent over the previous year, and are projected to "increase sharply" over the next three years, "primarily as a result of the high rate of increase in hospital costs."

Such costs have risen significantly faster than general wages and prices. Even during the period of federal "economic stabilization controls" from 1972 to 1974, hospital costs rose at an annual rate of 12.5 percent compared with less than 7 percent for general inflation.

As a portion of the total population, the number of elderly has been rising steadily in recent years and is expected to continue growing as the "baby boom" generation moves beyond middle age. This will put increased financial pressure on medicare and medicaid, officials predict.

During President Carter's term, efforts were made to establish a national health insurance program and also legislate hospital cost-control measures. Neither succeeded, nor are they expected to in the near future.

In both the House and Senate budget reconciliation bills, those who elect to have more health insurance under medicare would have to pay a higher deductible portion of medical costs. The Senate bill goes further by raising the premiums paid for such extra coverage to one-quarter of the costs.

But these limited medicare measures -- plus disagreement over "capping" medicaid -- indicate much needs to be done before health care returns to financial soundness.

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