5 Things Voters Need To Know About Medicare

The big changes politicians talk about won't happen this year. But they're coming.

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If you're dependent on Medicare—as nearly 50 million Americans are—this year's presidential election could cause a lot of anxiety. 

Medicare has become one of the biggest flash points between President Obama and his likely Republican rival, Mitt Romney, with the two men in deep disagreement about how to preserve this vital safety net program. The rhetoric is already explosive, with each candidate accusing the other of threatening to "end Medicare" as we know it.

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The end of Medicare has been greatly exaggerated, and it's a good rule of thumb during any election to heavily discount the charges candidates level at each other. But Medicare will need some radical surgery over the coming years if it's going to continue providing health coverage for nearly all of the country's seniors. Here are five things to keep in mind as the candidates debate (and distort) each others' plans for this huge government program:

Medicare is headed for insolvency. The $550 billion spent on Medicare each year accounts for about 15 percent of the federal budget and makes Medicare the third costliest government program, after Social Security and defense. But Medicare's costs are growing faster than any other program due to the influx of baby boomers moving into the program, longer life expectancy and the overall rise in healthcare costs.

At current rates of growth, Medicare will basically bankrupt the U.S. government. By 2024, the trust fund that finances hospital stays and other inpatient treatment will be depleted. Of all the problems with government spending, fixing Medicare is probably the most urgent.

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Medicare recipients will eventually have to pay more for their own healthcare. Obama says he wants to keep Medicare more or less as it is, while raising taxes on the wealthy to keep benefits intact. Romney favors a "premium support" plan, in which the government only covers part of the cost for many recipients, with more generous benefits for the poor. There will be a huge battle over the details, but it seems likely that a compromise will provide more benefits than Romney has called for, yet still require larger co-payments by most recipients. The eligibility age will also probably rise higher than the current level of 65.

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Making patients sensitive to costs will be a key element of reform. The current "fee-for-service" structure gives patients and caregivers little incentive to reduce costs, since the government basically pays for services, whether they make the patient healthier or not. Many reformers feel that patients would be far more selective if they had to bear more of the cost of most medical procedures, which would push overall program costs down. The Republicans' premium-support concept, for example, would give each beneficiary an annual allotment of funds, but leave it up to them how to spend their healthcare dollars. That, in theory, would encourage price competition and reduce wasteful spending.

Nothing will change this year. For all the bluster, there's practically no chance Congress will do anything to alter this popular program in the midst of a divisive election. Reforms could take root as early as 2013, however, when Congress needs to start addressing ways to corral the growth of the $15 trillion national debt. One likely consolation to seniors is that significant changes will be phased in gradually, with those already over 65 probably grandfathered in.

Every generation will be affected. Medicare reforms may actually affect the young more than the old, since it will be those under 55 that are most likely to be hit with benefit reductions, and perhaps tax increases if needed to maintain high coverage levels for current Medicare recipients. Any major cutback in support for seniors will raise the burden on the children most likely to look after them. That makes Medicare one program just about everybody should pay attention to.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success, to be published in May. Follow him on Twitter: @rickjnewman.