The cost of Medicare will run $200 billion to $400 billion ahead of its revenues between now and 1995 unless something is done, and a federal advisory council is studying a proposal to earmark federal tobacco and alcohol taxes to help make up the difference.
The panel, set up by the Department of Health and Human Services, also is considering a proposal to raise the Medicare eligibility age gradually from 65 to 67 in the next century, just as Congress voted to do with Social Security pensions earlier this year.
In addition, the panel, which has made no decisions, is looking at a trade-off under which Medicare benefits would be increased but so would the so-called Part B premium that recipients must pay if they want coverage for their doctor as well as for hospital bills.
Under this plan there no longer would be any limit on how many hospital days Medicare would pay for after the patient paid an initial deductible, nor would patients have to pay more than a cap of $350 to $750 a year in doctor bills.
These improvements would make it unnecessary for elderly people to buy the supplementary private insurance that many buy now to pay costs Medicare does not cover. Such so-called Medigap policies are expensive. Instead of them, Part B premiums would go up.
According to one calculation, an increase in this premium from the current $146.40 to $350 a year and possibly less for low-income people would cover all of the added costs and then some, helping to defray the projected deficit. And the extra Part B premium still would be less than many elderly now pay for "Medigap" coverage.
Any proposal by the advisory council first would have to be adopted by the administration, and then by Congress. Some of the proposals would almost certainly run into opposition on Capitol Hill.
The advisory panel is headed by Dr. Otis R. Bowen, a physician and former Republican governor of Indiana. The panel is the quadrennial advisory council on Social Security established in 1982. But the Medicare problem is so serious that when then-HHS Secretary Richard S. Schweiker named the panel he told it to focus entirely on the health trust fund and lay the rest of Social Security aside.
So far the Bowen panel largely has worked out of public view.
At present, the Medicare trust fund, now financed mainly by part of the Social Security tax, has a relatively comfortable balance. But forecasters say it will run out of money rapidly because of the aging of the population and the high rate of inflation in hospital and medical costs.
According to the Bowen panel, the hospital fund probably will be depleted by 1990; it could be a bit sooner or later, depending on the economy. To stay in balance over the next 12 years, through 1995, it will need additional revenues or benefit cuts totalling $200 billion to $300 billion if economic conditions are fairly good, the panel believes. Under pessimistic assumptions, the cumulative deficit by 1995 could be $400 billion, the panel has calculated.
One way to meet the deficit, according to panel studies, would be to earmark federal alcohol and tobacco excise tax revenue to the Medicare trust fund. This would produce up to $11 billion a year, even if the tax rates are not increased.
A panel study says that alcohol and tobacco are responsible for substantial national health costs. It said the National Center for Health Statistics calculated that in 1980, $4 billion a year in Medicare and Medicaid outlays were directly attributable to smoking-related diseases. Medical costs for alcohol-related diseases also were said to be high.
The panel is looking at the Medicare eligibility age because Congress has just increased the basic age for receipt of Social Security old-age pensions without reduction of benefits from 65 to 67, phased in from 2000 to 2027.
The change would put Medicare on the same basis, and most workers, it is hoped, would be covered by existing private group health policies on the job until age 67. What to do about those who would not be so covered is a problem.