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What Medicare debate is about

THE BALTIMORE SUN

Republicans in Congress are about to unveil the details of their plans to revamp Medicare, the government health insurance system that covers virtually all Americans over 65. Republicans say their plan, which would trim spending by $270 billion over seven years, is necessary to save Medicare from bankruptcy and give elderly Americans more health-care choices. Democrats counter that the GOP is using Medicare reform to make seniors pick up the tab for a proposed $245 billion tax cut.

But even though the formal debate has yet to begin, some of the most important questions can be already be answered, as John B. O'Donnell of The Sun's national staff explains below:

Is Medicare really going broke?

Not exactly. The Medicare trustees predict that the balance of the trust fund which covers hospitalization expenses will be depleted in 2002.

The trust fund, though, is simply an accounting device. Even if the fund technically is emptied, the government will still be able to pay Medicare bills. The trust fund would still have income and bills would be paid, though more slowly. These payments for hospitalization are known as Part A of Medicare.

Is Medicare the same as Medicaid?

They are different programs. Medicare is available to virtually every person over 65, regardless of income or assets. Medicaid is a federal-state health program for the poor. For the elderly poor, Medicaid pays Medicare premiums, co-payments and deductibles. It also covers long-term nursing home care and pays about one-half the nursing home expenses in the country.

So back to Medicare: How does the Medicare trust fund work?

Medicare taxes -- now 1.45 percent of salary -- are deducted from the paychecks of American workers to pay for Medicare Part A. Employers pay into the fund an additional 1.45 percent of salary for each worker. For someone making $30,000 a year, the Medicare tax amounts to $870, with half coming from the worker and half from the employer. Last year, the trust fund had $109.5 billion in income -- $95.2 billion of it from payroll taxes.

In years when the trust fund's income exceeds expenses, the leftover money is used to pay general government expenses and Uncle Sam writes an IOU to the fund for that money. Those IOUs constitute the trust fund balance. When income isn't sufficient to cover expenses, the trustees dip into the balance, cashing IOUs. The government sells bonds to investors to raise the money and uses those borrowed funds to pay the bills. Those borrowings add to the federal deficit.

Beginning next year, according to the latest trustees' report, expenses will begin to exceed income and the IOUs will have to be cashed. The current $136 billion balance is projected to be used up by 2002. But even then the fund will still have income -- $154.9 billion in 2002, including $145.4 billion from the payroll tax. So there would be money to pay bills.

OK, that's Part A. What else is there?

Part B covers physicians and some other services. Medicare recipients, income taxes and government borrowing finance it. The premium paid by recipients is $46.10 a month and covers 31.5 percent of costs.

Does Medicare pay all costs for covered services?

No. There are deductibles and requirements for patients to share various costs. For seriously ill people, the out-of-pocket expenses can be quite high.

How do Medicare recipients pay these extra costs?

Most have a supplemental insurance policy, known as medigap insurance, bought from a private insurer. Medigap insurance often costs $1,000 or more each year. Even with these policies, some medical bills have to be paid by the elderly themselves.

Are the Republicans "cutting" Medicare?

It depends on what you mean by a cut. Under the Republican plan, the average amount Medicare spends on each patient will rise between now and 2002 -- but not by as much if no changes were made in the law. So Democrats claim the Republican plan to pare the growth of Medicare expenses amounts to a cut.

Will the Republican plan "save" Medicare?

Only until 2014. That's when the bulk of the postwar baby boom generation will begin to retire, placing a further strain on Medicare as the ratio of workers to retirees drops dramatically. Republicans want a commission appointed to propose further reforms to keep Medicare solvent after 2014.

How would the Republicans hold down the cost of Medicare?

By increasing the Part B premium paid by Medicare recipients, reducing payments to doctors and hospitals and getting more Medicare recipients to change the way they receive health care.

How much would premiums go up?

From $46.10 per month this year to about $90 to $93 per month in 2002, say Republicans. That is roughly $7 to $10 per month more than if the Medicare program were left as it is. Democrats say the real figure will be higher under the GOP plan -- at least $21 per month more in 2002.

Is that true for everyone?

No, the wealthiest Americans would pay more, under the Republican proposal. Premiums might double or triple for seniors with annual income of more than $75,000 ($150,000 for a couple).

Do the Republicans propose to increase the payroll tax?

No. That's not part of the plan.

Would I have to change the way I currently get care?

Not under the current GOP plan. But you would be offered the option of changing the way you receive health care.

Would Medicare co-payments and deductibles go up if I don't change?

No more than they would under the current system.

What kind of choices are we talking about?

The Republicans want to limit the amount spent on each Medicare recipient. One way to do this is through something called managed care, which 10 percent of Medicare recipients now use. This means that someone else manages your health care -- usually a physician.

Here's how it works. You join a managed-care plan -- there are several types, including health maintenance organizations and preferred provider networks. You have a primary-care physician who is approved by the plan and is responsible for your care. You can go to this doctor whenever the need arises. But you cannot visit any other doctors, hospitals or other medical providers unless you get written approval from your primary-care physician.

Would joining a managed-care plan mean I could not see my favorite doctor?

Not necessarily. Your favorite doctor may already be in the plan's physician network, or might be able to join.

What do I gain by joining a managed-care plan?

You get at least the same coverage that traditional Medicare offers and in some cases better coverage. Often, the cost is less. You don't need supplemental insurance and your deductibles and co-pays are less. You do, however, still have to pay the Part B premium.

What does the government get?

Fixed costs for your care, Republicans hope. And greater certainty about what it will cost. The managed-care companies are paid a flat monthly fee. If your care costs more, the company, not the government, pays the difference. If it costs less, the company keeps the difference and uses it either for profits or better coverage for patients.

What do I give up?

Your freedom to seek any medical care from anyone, with a guarantee that your insurer will cover most, if not all, of the bill.

What other options are there?

Under the GOP proposal, you can get a medical savings account, a relatively new concept. The government would give you the money it would spend on your medical care. Some of it would be used to buy an insurance policy to cover catastrophic costs. The policy would pay all costs after the first several thousand dollars each year. The rest would be used for ordinary, routine medical costs. If your costs are less than the money from the government, you keep the balance, either adding it to the amount in your medical savings account or using the money for (( other purposes. You would have to pay income tax on any funds you convert to other uses.

What if I choose a plan and decide later that I don't like it?

You could switch at the end of the year or perhaps sooner. It's not clear. Right now, seniors in Medicare HMOs can get out of them after just 30 days.

Does managed care save money for Medicare?

There's a dispute about that. Some argue that it will actually be more expensive than the traditional plan. They claim that managed-care companies, despite requirements to take all comers, will try to sign up only healthy Medicare recipients whose health costs are low.

The managed-care industry and the plan's Republican sponsors, the other hand, argue that the government will save money -- up to $90 billion over the next seven years. But the Congressional Budget Office, the official umpire in such matters, has so far refused to agree.

What Medicare is

Medicare does pay for: Hospital care, outpatient services, short-term skilled nursing facility care, home health care, hospice care and physician services.

It does not pay for: Nursing home custodial care, most immunizations, routine physical exams and tests (except mammograms and pap smears), dental services, most prescription drugs, hearing aids, most eyeglasses, cosmetic surgery and experimental procedures.

If all else failed

Congress could increase the payroll tax to make sure annual income covered annual expenses.

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