Baby Boomers start enrolling in Medicare approximately four years from now. Many people have described the financial strain this huge increase in enrollment will cause on this federally funded entitlement. Some predict Medicare will collapse and die. Don't believe it. There are several potential "cures" for Medicare that can alter the course of the illness. These treatments include:

1) Limiting enrollment,
2) Decreasing benefits,
3) Reducing reimbursements and
4) Raising taxes.

Some or all of these treatments will likely be used.

Cure 1--Limiting Enrollment
The simplest way to reduce the crush of new Medicare recipients is to raise the Medicare eligibility age, which is currently 65. Raising the age by a few years will increase funding by requiring workers to pay into the Medicare system for an additional period of time. It will also reduce Medicare spending by an equal number of years.

In the past, full Social Security benefits began at age 65. Currently, the federal government is raising this to age 67. It is likely the federal government will use the same formula to increase the age of Medicare eligibility.

The number of Medicare enrollees could also be reduced if Medicare rules were changed to allow potential recipients the right to purchase private health insurance. At this point, the Medicare system operates as a single payer (the federal government) for all U.S. citizens over the age of 65: One cannot opt out and purchase private insurance. However, a voucher system in which Medicare-eligible citizens receive a government-issued coupon to defray the cost of private health insurance could shift more people out of the program.

Finally, Medicare covers all citizens over age 65, including people who never paid into the system, such as elderly immigrants. Medicare enrollment could be reduced by requiring recipients to pay into the system for a minimum number of years.

Cure 2--Decreasing Benefits
There are several ways Medicare benefits could be reduced. The federal government could set age restrictions on certain expensive elective proceeds. For example, patients over the age of 85 might not be eligible for joint replacement surgery. Medicare could also use "evidence-based" medical studies for a similar purpose. What if the feds utilized a study showing coronary artery bypass surgery to be ineffective at prolonging one's life? Perhaps they would use this "evidence" to severely restrict use of this procedure.

In addition, the government could indirectly decrease benefits by requiring Medicare patients to enroll in managed care programs. With a limited supply of capitated dollars, managed care programs may need to restrict certain medical and surgical treatments.

Cure 3--Reducing Reimbursements
Physicians know this one only too well! Medicare keeps cutting physician reimbursement. Even a simple freeze on our fees results in an effective pay cut because the buying power of the dollar declines with inflation.

Another avenue to reduce reimbursements is by raising co-payments for Medicare recipients. Further, the federal government could charge co-payments on a graduated scale so seniors with larger incomes would pay higher co-payments.

Cure 4--Raising Taxes
Currently, workers pay 1.45 percent of their earned income into the Medicare pool. Employers match this with an additional 1.45 percent. Self-employed citizens pay 2.9 percent. In other words, all working Americans pay a flat 2.9 percent of their earned income into Medicare. An 18-year-old guy working today for minimum wage pays this tax even though he may not be eligible to receive Medicare benefits for another 50 years! The government could easily raise the Medicare tax rate on earned income.

There are other ways to increase Medicare tax revenues, however. One's "unearned income" is not subject to the Medicare tax. This includes interest on savings accounts, bonds and dividends from investments. In addition, capital gains and rental income are considered "unearned." The government could add a Medicare tax on these sources of income.

Medicare was started during President Lyndon Johnson's administration in 1965. It was a modest plan that has grown in scope and cost over the past four decades. Although the number of Medicare recipients will dramatically increase over the next two decades with the arrival of the Baby Boomers, death of the Medicare system seems unlikely. There are just too many potential cures.

Paul Kirz, MD, CFP, is a Whittier-based orthopedic surgeon, certified financial planner and registered investment adviser. He can be reached at 562/698-7946 or PKirz@aol.com.