The Medicare program is a major component of social insurance in the United States. Enacted in 1965, it provides health insurance
to two groups of people - people of 65 and above, and
disabled people. Its purpose is to increase access to quality health care by the elderly and disabled people, and to reduce their associated financial burden. In the past 37 years, Medicare has experienced reforms in terms of its benefits provided, population covered and payment system. With the fast growing population of 65 and older and a rapid rise of health care cost, a major concern about Medicare is whether there will be enough resources to meet the health care
financing needs of the disabled and elderly over time. Recent studies propose various solutions to avoid bankruptcy of the Medicare program in the long run. This study examines these proposed reform plans and points out that rapidly rising cost should not be the target of the reform. A market-oriented approach to solving the Medicare financing problem could lead the reform to a wrong direction. On the other hand, proposals calling for altering the tax revenue base to allow for generating needed revenue should be a feasible and desirable alternative.