Since the creation of Medicare in 1965, our nation has made a commitment to help fund the medical care of elderly Americans to prevent them from exhausting their life savings, or the assets and incomes of their working children and younger relatives. Unfortunately, policy makers have failed to take steps to keep the program financially solvent despite coming changes in our population’s demographics.

When Medicare was first enacted, the average life expectancy of men and women was in their 60’s and 70’s respectively. With advancements in medicine, men are now living into their 70’s and women are living into their 80’s and 90’s—a development that those who created the program could not have anticipated. In addition to the increasing life expectancy, the “Baby Boom” generation is set to begin retiring this year, doubling the amount of retirees in Medicare from 40 million to almost 80 million—putting an enormous amount of fiscal pressure on the program.

The fact is, unless we act soon, Medicare will not be available to those under the age of 55. The longer we delay making modifications, the more likely it is that current Medicare recipients could be affected as well. But if we do take action, we can both preserve the program for future generations, and also ensure no changes are made to the benefits of current Medicare beneficiaries and those who will join the program over the next ten years.

Time is not on our side. According to the non-partisan Congressional Budget Office (CBO), Medicare will go bankrupt in 2021 unless we do something to save it.^[1] Similarly, the Trustees for Medicare say that “Without corrective legislation, the assets of the Medicare trust fund would be exhausted within the next 7 to 19 years.”^[2] Medicare is considered an “open-ended” spending program—meaning that there are no meaningful controls on program costs. As a result, providers are incentivized to provide additional services without regard to cost or necessity. This “blank-check” commitment creates a perverse incentive for everyone in the health-care system to maximize his or share of this apparently limitless government subsidy.

Currently, the federal government spends nearly 50 cents of every dollar spent on health care in the U.S. through payments it makes for Medicare and Medicaid, the unchecked spending results in rising costs that are causing inflation throughout the system, which in turn drives government spending on health care even higher. Today, Medicare spending is growing at a rate of 7.2 percent every year, which is twice as fast as the growth of the U.S. economy. This is why a broad consensus of non-partisan economists and experts say that the U.S. government is heading for a crisis caused by excessive spending and debt. Failure to take action and save these programs poses the greatest threat to the health and retirement of America’s seniors.

Medicare is a major driver of our nation’s debt—totaling tens of trillions of dollars in unfunded promises—that politicians have made knowing that there is no way to pay for the promises. Without reform to the program, massive tax increases will be forced on employers and workers and indiscriminate benefit cuts will be the result for current Medicare beneficiaries. According to the CBO, if action is not taken to save Medicare, taxes “would reach higher levels relative to the size of the economy than ever recorded in the nation’s history.”^[3] The CBO has also stated that if we continue to deny the problem, “a growing federal debt would increase the probability of a sudden debt crisis, during which investors would lose confidence in the government’s ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates.”^[4] A failure to act will result in broken promises to current seniors, and tax rates would be raised across-the-board, without regard for economic consequences. All of this clearly shows that the only plan that “ends Medicare as we know it” is continuing the status quo.

Although lawmakers have known for decades that tens of millions of American seniors would be added to the Medicare program over the coming years, policy makers have failed to give an honest assessment of how to address the unsustainable growth of Medicare spending that will ensue.

As Chairman of the House Budget Committee, my colleagues and I put forward a budget proposal that addresses this challenge. First, it protects the traditional Medicare program, ensuring no disruptions for seniors in the program now and for those who will enroll in the next decade.  Let me be clear, nobody age 55 or older will see any changes to the way Medicare currently operates. At the same time it preserves Medicare for future beneficiaries, by offering the same kind of health care options now enjoyed by Members of Congress and federal government employees.

Rather than subjecting current and future seniors to immediate cuts to their benefits if the Medicare program maintains the status quo, my proposal makes common-sense reforms that protect those in and near retirement—55 and older—from any disruptions. The Path to Prosperity strengthens the program for those 54 and younger by personalizing the Medicare benefit with guaranteed coverage options, giving future beneficiaries the same kinds of plans enjoyed by Members of Congress and federal government employees.

Starting in 2022, new beneficiaries will be given the ability to choose from a number of competing plans that are certified by Medicare and required to offer coverage to all enrollees. Health plans that choose to participate in the Medicare exchange must agree to offer insurance to all Medicare beneficiaries, to avoid “cherry-picking” health applicants and denying those with pre-existing conditions and ensure that Medicare’s sickest and highest-cost beneficiaries receive comprehensive coverage. This reform builds upon the bipartisan Rivlin-Ryan reform plan advanced in the President’s Fiscal Commission in 2010.

Contrary to reports, this is not a voucher program, but rather a premium-support model. Under this plan, Medicare will subsidize the cost of the plan that participant’s choose, similar to Medicare Advantage, with a payment that is equal to the amount the current Medicare system pays on average per beneficiary. Annual cost-of-living adjustments in the payment will be made each year.  Payments would be adjusted so that wealthier beneficiaries would receive a lower subsidy, those with poor health would receive a higher payment if their conditions worsened, and lower-income seniors would receive additional assistance to cover out-of-pocket costs. The premium-support model would operate similar to the way the Medicare prescription-drug benefit program works today, which came in over 40 percent below cost projections.

Injecting choice and competition into Medicare creates a patient-centered system where the patient and the doctor are the nucleus of the health care system.  The health care providers—the hospitals, the doctors, and the insurance companies—compete against one another for business.  Those with the best prices, highest quality, most benefits and positive outcomes will generate the most participants. This differs from the President’s plan, which delegates power to an independent payment advisory board (IPAB).  In his plan, the President appoints all the members of IPAB.  These Federal bureaucrats have no accountability to anyone, including Congress.  It would run Medicare, set price controls, and determine health care coverage under Medicare.  Instead of handing power to the bureaucracy, our plan mirrors the health care benefit program provided to Members of Congress and federal employees by allowing Americans to choose their health care providers.  Enacting these common-sense reforms maintains promises to current and future retirees.

I agree with the President that reform is essential in order to ensure Medicare exists for younger generations, while having a serious conversation about the debt crisis facing our nation.  When addressing the House Republican Retreat in January of 2010, President Obama summarized the importance and difficulties for Medicare reform well saying that “the major driver of our long-term liabilities, everybody here knows, is Medicare and Medicaid, and our health care spending.  At what point can we have a serious conversation about Medicare and its long-term liability, or a serious conversation about Social Security or serious conversation about budget and debt where aren’t simply trying to position ourselves politically.  That’s what I’m committed to doing.”

Comparing any plan to save Medicare with the status quo means comparing real solutions to a false reality. It is unacceptable to allow Medicare spending to remain on an unsustainable trajectory, breaking promises to current seniors and future generations. The budget I support protects and preserves Medicare for those in and near retirement, while saving and strengthening this important program so that future generations can count on it to be there when they retire.  Reform aimed to empower individuals—with a strengthened safety net for the poor and the sick—will not only ensure the fiscal sustainability of this program, but the federal budget and the U.S. economy as well. It will also guarantee that Medicare can fulfill the promise of health security for America’s seniors. For these reasons, I was pleased to see the House pass H.Con.Res.34, the FY2012 Budget Resolution on April 15, 2011, and I remain hopeful that this will be a needed first step to the President’s call to seriously address the drivers of our debt.

Thank you again for sharing your thoughts with me about Medicare reforms in the FY2012 Budget Resolution. To learn additional details about the FY2012 budget, you are welcome to visit the House Budget Committee website: http://budget.house.gov/fy2012budget/.