Managing without Medicare: with experts projecting bankruptcy by 2019, how will you handle future medical expenses?

Lorna Huie, a 49-year-old business analyst, is worried that Medicare will run out by the time she turns 65. According to a government report issued in March, Medicare trustees say that the program has "deteriorated significantly" and that funds will run out in 2019. That's seven years earlier than last year's projection and the same year that Huie--and 60 million other people--will be eligible to receive Medicare benefits.

"I'm very concerned that it's not going to be available," says Huie. "We pay into Medicare and Social Security so it will be them when you need it. And now, with fewer companies providing coverage in retirement, if we don't get Medicare, what other sources [of medical assistance] do we have? And at what cost?"

Most people expect Medicare to be available to them when they retire. That was the promise of the program when it was created in 1965 to provide health insurance for the nation's elderly. Today; more than 41 million people are covered by Medicare. The program is funded in part by a 2.9% payroll tax, which is paid by employers and employees. However, payroll taxes will not cover the program's hospital costs this year, making it necessary to rely on interest earnings from Medicare's $256 billion trust fund. This fund is projected to run out completely in 15 years, leaving many to wonder how things got so bad.

The report by the Medicare board of trustees points to lower tax revenues, higher healthcare costs, and year-old Medicare legislation as the primary causes of Medicare's accelerated illness. This isn't the first time Medicare has been given a gloomy prognosis. But the rate at which it's expected to run out is increasing year to year.

Medicare experts say people like Huie should not panic. "The Medicare trust fund is in very [bad] financial shape--but will it be insolvent? I don't think so," says Joseph Antos of the American Enterprise Institute, a Washington. D.C., think tank. AARP, which represents 35 million people aged 50 and over, concurs with Antos. In an analysis of the Medicare report, AARP states, "The 15-year solvency window projected by the trustees provides Congress with adequate time to make necessary adjustments to Medicare's financing."

Antos expects Congress to keep Medicare solvent by taking actions such as raising payroll taxes, reducing benefits, and increasing co-payments for premium services. But these measures are mostly seen as temporary fixes, not long-term solutions, "Medicare is part of the larger healthcare system," notes Scott Frey of the National Committee to Preserve Social Security and Medicare. "You need a broader debate on fixing healthcare before you can fix Medicare."

Experts say that an alternative to Medicare is a private health insurance plan. But those can be extremely selective when choosing members and very expensive for those admitted. Health savings accounts (HSAs) are not a viable alternative to Medicare, says Michael Chernew, a health economist in the University of Michigan's department of health management and policy. HSAs were created by the new Medicare bill passed in December and allow people under 65 with a high-deductible insurance plan to create tax-free savings accounts to pay for medical expenses. Chernew served on a panel in 2000 that reviewed the methodology Medicare used to come tip with its long-term projections. "HSAs are designed to pay for health issues before you retire," he points out. And while it is possible for people to accumulate significant savings in their HSAs by the time they reach 65, "the amount of money needed to cover someone over 65 for the rest of their life is a large sum," says Chernew.

Huie is primarily dependent upon her husband's retirement benefits for coverage; Medicare is her backup option. But not everyone has a spouse with retirement benefits. And even fewer have the financial resources to pay for medical services. While Congress has the power and resources to fix what ails Medicare, perhaps the only way to get new legislation adopted is for consumers to become politically active. Frey suggests casting an educated vote at the next election and writing to your representative to demand a protected Medicare benefit.