One of the most serious problems to face the US health care system and the US economy in the 21st century will be the demographic shift caused by the aging of the “baby boom” cohorts (persons born 1946 to 1963). The federal share (25%) of today's $1 trillion health care bill is projected to grow to 50% of a $1.6 trillion to $2.3 trillion bill in 2015. In a 1997 report to Congress, the American Academy of Actuaries estimated that to maintain Medicare solvency through 2070 immediate benefit cuts of 60% were necessary—equivalent to the elimination of nearly all in-hospital care for people over 65. Without drastic service reductions, Congress must raise Medicare payroll taxes fourfold or return to deficit spending.

This situation cannot be solved by moving seniors into managed care and capping health costs. Current experience with managed care suggests that most real savings from fee-for-service inefficiencies have been achieved, and further major savings as a result of increased efficiency (as opposed to service reductions) are unlikely. This is especially true as health maintenance organizations (HMOs) begin to compete with each other for market share in increasingly saturated markets where they are less able to control expenses by excluding seriously ill and costly patients (1). HMO efforts to reduce costs under competitive and market constraints now threaten the quality of care and create dissatisfaction among both patients and physicians. These problems, plus frequent denial of experimental treatments (especially for terminal diseases) and recent cases of major Medicare fraud are causing state attorneys general to increase oversight of operation of managed care plans and for-profit hospitals (2).