By Steve Fox
Washingtonpost.com Staff
Updated: May 5, 1999

Since its creation in 1965, Medicare has grown into the government's second-largest social program – trailing closely behind Social Security. The health program is currently available to U.S. residents when they turn 65, regardless of whether the recipient is retired or still working. In 1997, the House ruled out a proposal to raise the eligibility age for Medicare recipients from 65 to 67.

The program is composed of two parts:

• The Part A Trust Fund, which is financed by payroll taxes and pays mainly for hospital costs;

• and Part B, which provides supplementary medical insurance and covers doctors' fees, most outpatient hospital services and certain related services. About one-fourth of Part B is financed by monthly premiums from those who enroll in the program and about three-fourths by general revenues from the federal government.

As the roughly 77 million "Baby Boomers" begin to approach retirement age, Medicare rolls will grow and the workforce that supports the program with taxes will shrink. Washington is divided on how to address Medicare's uncertain future. Critics of the current system argue for a reduced government role with greater reliance on private insurance and tax-free savings. Supporters warn about reduced benefits in the competitive era of managed-care health plans.

Optimistic budget projections in early 1999 have made it easier for Congress and the White House to delay reaching an agreement that might relieve Medicare's fiscal pressures. A March 1999 report by the Social Security and Medicare board of trustees estimates that the health program could pay its hospital bills until 2015. The Congressional Budget Office puts the date at 2012.

• 1999 Annual Reports of the Board of Trustees
• May 1998 CBO Report on Medicare Growth

Minor changes in the program, such as limits on payments to doctors and hospitals and crackdowns on fraud, have helped extend its financial future, but will not solve Medicare's longterm problems.

Steve Fox can be reached at foxs@washpost.com