President Barack Obama has pledged to overhaul the health care system in order to cut down on the 45 million Americans who don't have health insurance -- an initiative that his team once estimated would cost $65 billion but experts predict could run much higher. Meanwhile, Medicare -- the government-run health-care program for seniors -- is increasingly eating up a large chunk of the federal budget. And the trustees who compile an annual report examining the financial solvency of Medicare and Social Security have repeatedly said Medicare can't survive in its current state.

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The projections don’t look good.

In just over four years, the government fund paying hospital costs for U.S. seniors will take in less money than it's paying out. Six years later -- in 2019 -- that Medicare fund will be empty, according to federal officials. Meanwhile, the U.S. Census predicts that the median age will only get older.

"We can't afford the current system,” said Dennis Smith, the former director of the federal Center for Medicaid and State Operations. I think people need to realize that they need a different approach. The problems are really hidden from the public."

Even with the nation embroiled in economic turmoil, President Barack Obama has pledged to overhaul the health care system in order to cut down on the 45 million Americans who don't have health insurance -- an initiative that his team once estimated would cost $65 billion but experts predict could run much higher

Meanwhile, Medicare -- the government-run health-care program for seniors -- is increasingly eating up a large chunk of the federal budget. According to the federal Center for Medicare & Medicaid Services, which administers the programs, spending on Medicare totaled $431.5 billion in 2007.

And the trustees who compile an annual report examining the financial solvency of Medicare and Social Security have repeatedly said Medicare can't survive in its current state.

"One overriding issue is the financial health of the program," said Paul Precht, director of policy and communications for the Manhattan-based Medicare Rights Center. "It goes broader than the insolvency for the trust fund that's driven by the same cost increases that are causing problems in the health-care system."

Part A, the part of Medicare that pays for hospital costs, is funded solely by payroll taxes, but the trust fund where that money is held will be bankrupt by 2019, according to government estimates. Part A, along with Part B, which is paid for by monthly premiums, general fund revenues and payroll taxes and covers overall medical care, are the components of the original Medicare system that officially began in 1966.

And the increasingly aging population doesn't help Medicare's fiscal quandary.

The U.S. Census Bureau said in November that nearly 20 percent of all U.S. residents will be 65 and older by 2030. That age group will more than double to about 88.5 million by 2050, according to the Census Bureau. Right now, there are 38.7 million in that age group.

And for most seniors, Medicare already isn't enough to cover health-care costs. Most seniors rely on supplemental health insurance besides Medicare, experts said.

"Exit polling from the last election showed that people are worried that they would lose coverage, be uninsured, and not be able to afford" health care, said AARP spokesman Jordan McNerney. “There is that safety net of Medicare, but there's still a premium there and a cost for anyone in the program."

WHAT OBAMA WANTS

In a recent press conference on health care, Obama spoke generally about the reforms needed, which include cutting costs and boosting access to health care. He did not mention Medicare.

But the Democrat did talk specifics on the campaign trail. For instance, Obama said he would save costs by rooting out fraud in the Medicare system, which siphons an estimated $60 billion per year.

For instance, the federal agency overseeing Medicare reported in July that it found nearly $700 million in improper Medicare payments, money that was subsequently returned to the Medicare trust fund. Federal officials have targeted medical equipment suppliers and home health-care providers in areas such as Los Angeles, Houston and south Florida.

Medicare beneficiaries have been duped into purchasing equipments such as power wheelchairs that they didn't need, and medical equipment suppliers have used telephone numbers of deceased doctors to game the system, said Vicki Gottlich, the senior policy attorney for the Center for Medicare Advocacy.

But experts say weeding out federal cash wasted due to Medicare fraud isn't enough.

"The reality is, getting fraud out, that's apple pie. We've also talked about it for years," said Smith, now a senior fellow specializing in health care reform at the conservative think tank Heritage Foundation. "It is not the answer that we need and sometimes, it becomes a diversion from what it needs to do."

"We don't even know what exists out there in terms of fraud on the HMO side," added Precht. "And for the drug benefits, we haven't begun to look."

But aggressively pursuing Medicare schemes could have negative consequences, Gottlich said.

“You don’t want to cut back on services to such an extent that providers are afraid to give people care because they are fearful of fraud,” Gottlich said.

Obama also zeroed in on Medicare Advantage plans as a way to save money. The popularity of those plans, which are private insurance alternatives to traditional Medicare programs, has boomed since they began in 2003.

Federal spending on Medicare Advantage will equal about $91 billion this year while just two years ago, that number stood at $60 billion, according to the Government Accountability Office. About 5.4 million people were enrolled in Medicare Advantage in 2005, but that number has since grown to 8.2 million, according to the Kaiser Family Foundation.

The Congressional Budget Office said the government will pay $94 billion this year for Medicare Advantage programs -- about 13 percent more than what the same treatments would cost under standard Medicare. Obama has said he would reduce federal subsidies to Medicare -- a measure that several officials said they supported.

"There is no reason that we should be paying plans more than what it costs under the original Medicare,” Precht said. “There are supposed to be savings, not costing it more."

Federal data also show that these Medicare Advantage groups are reaping more profits than they initially government officials. A Dec. 11 report from the GAO noted that providers offering Medicare Advantage plans earned an average profit of 6.6 percent of total revenue -- higher than their projected 4.1 percent profit margin. Once all the calculations are done, that means Medicare Advantage companies earned an extra $1.3 billion in profits.

"We would really like to see a level playing field," said McNerney, of the AARP. "Private plans have a place in Medicare, but if they are paid the same as traditional costs."

The final major proposal from Obama concerning Medicare reform involved prescription drug costs, which included allowing the government to negotiate for lower costs, import drugs from overseas and encourage the use of generic medicines.

The president-elect also said he wanted to close the "doughnut hole," which is a gap in coverage that occurs when a senior reaches the threshold for drug costs and is forced to pay out of pocket until he or she becomes eligible for catastrophic care.

The AARP recently presented cost-cutting strategies of its own. One option is to start reimbursing hospitals and doctors per patient, rather than per service, which the AARP and its analysts said would increase efficiency in health care. A similar system cut growth in health care costs from 30 percent per year to 7 percent, according to the AARP.

The nonpartisan Urban Institute, which analyzed Obama’s health-care plans, concluded that savings generated by his cost-cutting measures would likely be minimal, but could become "significant" if done cumulatively.

"But these cost-containment initiatives can only be successful if they are aggressively pursued," said the report, which was issued in September.

HOW CAN MEDICARE BE FIXED?

Opinions on how to heal the financially ailing Medicare system differ.

Precht's Medicare Rights Center listed a 10-point policy memo for Obama's transition team on how to fix Medicare, which included measures such as reining in "excessive" or "discriminatory" out-of-pocket spending, regulating marketing practices for private Medicare plans and timely reimbursements for premiums and other cost-sharing fees.

But overall, several experts said tackling Medicare reform should come hand-in-hand with overhauls in the nation's overall health-care system. Precht cited the need to examine cost-saving moves such as comparing effectiveness of different treatments and drugs, as well as using per-doctor payments as opposed to per-service payments.

"The way to tackle both Medicare's financial health as well as financial viability is to get at the causes of spiraling health care costs," Precht said.

Gottlich also said the physician payment system -- which will cut payments to doctors by 21 percent by 2010 if nothing happens -- needs to be changed. By shifting the focus to primary care from specialty care, whose doctors are paid more under the current system, preventive care could be emphasized as a way to reduce overall costs.

"What we need to do is to change the system back to a system that focuses on the consumer than the health plan," Gottlich said. "In Medicare, there is very little oversight and regulation ... the focus has been on what works the most for private insurance plans."

Payroll taxes funding Part A of Medicare -- which now is 1.45 percent of an individual's paycheck and matched by the employer -- hasn't been raised since the 1980s. Hiking it could be an option, Gottlich said.

Both Precht and Gottlich argued against raising the Medicare eligibility age of 65, arguing that it will only raise the ranks of the uninsured.

"You would be adding to that problem by raising the age," Precht said. "The cost burden for Medicare is already very high, and supplemental health care plans are increasingly expensive."

Meanwhile, Smith, the Heritage scholar, advocated for a market-based health care system. Giving beneficiaries the right to choose health-care programs would force doctors, medical equipment suppliers and other health-care providers to compete for seniors’ services, Smith said.

"Right now, there is no competition," he said. "Everyone works on government price controls. There is no need for physicians to compete, durable medical equipment suppliers to compete. They are guaranteed a certain level of funding."

Whatever reforms in the health-care system are chosen, former Senate Majority Leader Tom Daschle will oversee the changes as the secretary of the Department of Health and Human Services and the leader of the new White House Office of Health Reform.

Like Obama, Daschle has publicly criticized Medicare Advantage plans for receiving excess federal subsidies. In his recent book, Critical: What We Can Do About the Health-Care Crisis, Daschle favored outcome-based care for Medicare providers, elimination of unnecessary or harmful treatments, and expanding the Federal Employee Health Benefits Program with employer-based insurance, Medicare and Medicaid, according to the Wall Street Journal.

Daschle has also discussed allowing younger beneficiaries to buy into Medicare, but Gottlich said the effects of doing so are not yet clear. Sen. Max Baucus, D-Mont., also endorsed the idea of allowing people between ages 55 to 64 to buy into Medicare in his "white paper," which outlined the Senate Finance Committee chairman's vision for overall health-care reform.

"We're hopeful that some of the reforms ... in general will be Medicare reforms that will change some of the financing," Gottlich said. "If you give people access to preventive benefits, there will be fewer hospitalizations, and people's care will be better."