This year’s Medicare trustees report includes, for the third consecutive year, a “Medicare funding warning.” The 2003 Medicare Modernization Act requires Medicare’s trustees to issue a warning if general tax revenue would be needed to cover more than 45 percent of Medicare’s costs within a seven-year projection period. If trustees make this determination for two consecutive years, it will trigger a warning. Last year’s trustees report triggered the warning and the unprecedented requirement for the president to propose legislation to reduce Medicare’s dependency on general tax revenues. A mixture of payroll taxes, monthly premiums paid by beneficiaries and general tax revenue finance Medicare.

President Bush proposed legislation in February to reduce Medicare’s dependency on general tax revenues. His bill, introduced in both chambers, would require relatively affluent seniors to pay higher premiums for Medicare Part D. As a result individuals making $82,000 a year or married beneficiaries earning $164,000 a year would see their premiums rise but just how much isn't clear. It also would encourage use of electronic prescribing and electronic medical records and limit awards in medical malpractice lawsuits for non-economic and punitive damages. In addition it gives the Department of Human Services authority to reimburse health care providers based in some measure on the quality of their work. Presently Medicare pays a set fee for particular procedures.

The “Medicare funding warning” requires the president by law to respond with specific proposals in the following year’s budget to reduce general revenues as a share of Medicare costs. Congress is only required to consider his proposals in an expedited fashion; they do not have to approve them.

Legislative leaders promptly considered and rejected the President’s proposal, though committee chairs are expected to select some of its provisions and include them in their Medicare bills which are likely to be introduce mid-year.