So long as Medicare manages to pay its bills, the program may seem to be working. But just under the surface, Medicare is badly in disarray. The program faces dramatic long-term financing problems that threaten to create untenable payroll tax burdens for workers or draconian benefit reductions for retirees. The program's benefit structure includes broad gaps that leave the elderly unprotected from high medical expenses and resulting financial ruin. Yet payroll taxes are already too high, reducing employment and economic growth. To counter the program's rapidly rising costs, new regulatory burdens have been imposed on Medicare-financed services. But these burdens are producing a decline in the quality of .care for the elderly, and threaten to deprive doctors of professional freedoms and authority central to the American medical system. Consequently fundamental reform of Medicare seems long overdue.

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