Chicken Little was so afraid of getting scooped he called in a story to his news editors. "Medicare's going bankrupt! Medicare's going bankrupt!" he told them and then hurried to ask lawmakers to comment.

Along the way he met Reps. Henny Penny and Goosey Loosey, and Turkey Lurkey from the Senate, and when he told them the dire news they all headed straight to the Trust Fund to save it.

On the way they were confronted by health policy analyst Foxy Loxy, who said he could help them, but they never made it to the Trust Fund. Why? Not because they were eaten by Foxy as happens to these characters in the classic children's story -- but because Foxy told them the truth -- the Trust Fund doesn't really exist.

Moral of the story: Medicare isn't going broke. It's a public entitlement program created by law -- not a private Mom and Pop deli. It cannot just go belly up. Congress has to fix it.

The year 2004, along with many years before it, heard the bankruptcy warning and yet Medicare chugs on. What policy analysts will say is the Medicare Hospital Insurance Trust Fund, which pays for inpatient hospital care for Medicare beneficiaries, is merely one part of Medicare -- an account in an IRS computer. It is Part A Medicare and into it are logged payroll taxes and other select federal revenues. The problem for years has been the number of workers paying these taxes has declined as the number of Medicare beneficiaries has increased.

The rest of the many Medicare services fall under the Supplementary Medical Insurance Trust Fund or Part B Medicare -- another account financed by 75 percent federal government general fund monies and 25 percent beneficiary premiums. The new Medicare drug benefit that takes effect in 2006, Part D, will come under Part B financing as well, which critics say represents untold billions in unplanned federal costs.

So now -- and this has happened in the past -- the country is faced with a situation in which it is using up the surplus in the Part A's account, so revenues from payroll taxes by 2019 will not be enough to cover Part A expenses -- which in technical terms upsets the actuarial balance of the fund -- hence the big "B" word.

As the 2004 annual report by the Social Security and Medicare Board of Trustees noted, however, "Because SMI (Part B) is brought into balance annually through premium increases and general revenue transfers, actuarial balance is not a useful concept for that program."

So there it is. Part A will be spending more than what is in its account -- but it does not have the transfer mechanisms Part B -- the SMI -- has available to adjust annually for the problem by shoveling in more general-fund revenues.

The top healthcare New Year's resolution for 2005 should be to stop talking about Medicare bankruptcy and start talking about how to finance, properly, this $300 billion per year -- and growing -- senior health insurance program in the future as 76 million baby boomers head into retirement. The Medicare trustees do not talk about bankruptcy. They call it fund exhaustion, implying Congress will be forced to act to preserve actuarial balance.

It is clear by government estimates that Medicare will proceed to suck up more and more federal money. Medicare accounts for 2.75 percent of gross domestic product now and that is expected to rise to 14 percent by 2078.

The question really is: Is that OK with the public? If it is, if Medicare is a top priority spending item -- and millions of people accept that it is -- then Congress needs to update the financing structure.

Democrats say spending more federal dollars on Medicare is not that big a deal. It can be done if that is the country's choice. Of course, other spending priorities -- such as national defense -- also compete for appropriations attention, so Congress may put off the Medicare decision for at least four more years.

Democrats also say the federal budget surplus, so flush in the early part of the decade, should have been conserved to support Medicare Part A financing. They add that Bush administration tax cuts are a big part of the Medicare funding problem.

The bankruptcy battle cry, however, is an effective scare tactic for those who wish to cut federal Medicare spending.

President Bush also has rallied the GOP troops with his pledge to cut the deficit by half in five years, which could mean asking Medicare to cut $55 billion as its share.

Alas, Medicare is not going to be where Bush finds the big savings.

The Medicare and Social Security trustees said it best: "The two programs together will place rapidly mounting draws on federal general fund revenues long before trust fund exhaustion."

If Congress dismisses the idea of a new financial structure for now, it is left with three unsavory Part A options:

-- Raise the payroll tax to bring in more revenue -- not likely in a Bush administration -- and because that political discussion has been postponed for so long it now becomes problematic. The trustees said Part A "could be brought into actuarial balance over the next 75 years by an immediate 108 percent increase in program income or an immediate 48 percent reduction in program outlays (or some combination of the two)."

-- Reduce benefits for Medicare beneficiaries. The problem is that no one who wants a political future wants to go there.

-- Cut payments to providers. This option is the one most favored by lawmakers. In Part A it would be the nation's hospitals. After all, they can and do give the money back in the following year or so.

Hospitals, however, are represented by a strong industry lobby group on Capitol Hill -- the American Hospital Association -- and is not likely to go down without a big fight.

The AHA, however, can take off the boxing gloves because the Medicare Payment Advisory Commission -- MedPAC -- effectively threw a K-O punch on hospital cuts during its December meeting by projecting hospital margins in relation to Medicare payments at a negative 1.5 percent, down from a positive 4 percent a few years back.

"In that context I think it will be extremely difficult both from a policy and a political perspective to advocate reductions in hospital payments," said Chuck Clapton, chief health policy counsel for the House Energy and Commerce Committee Republican staff. Clapton said, however, his opinions were his own and he was not speaking for the committee or its members.

So the nation heads into 2005 with Medicare Part A in pending chaos and Part B about to take on the $400 billion or more Medicare prescription drug program. Because Bush has touted this as a shining success for his administration, don't expect cuts there -- so health plans, too, can take off the gloves.

Some Republicans also expect the new Medicare Advantage program for managed-care plans to actually save money in the long run, but that is highly questionable.

Which brings us to Part B-paid physicians -- who hold their breath each budget round on Capitol Hill. Here things get complicated. Congress fixed a Medicare payment problem for physicians for 2004-2005 -- for the election cycle -- but not beyond, so starting in 2006 docs are due to take cuts of about 5 percent for each of the following five years.

Most policy experts, though, predict this will never happen, so instead of reducing Medicare spending, Congress is going to have to allocate perhaps $100 billion or so in new funding to really fix the problem over the longer haul.

Home health agencies and skilled nursing homes are doing better on Medicare margins but still do not have enough excess to become valuable cutting targets.

The Medicare sky is not falling, then, it simply is very dark and cloudy.

"I think we are looking at a storm ahead, looking at the financing of important healthcare programs, and how they will be funded and structured in the years ahead," said Alice Weiss, healthcare counsel for the Senate Finance Committee Democrats.

Republicans who were unhappy at the cost of the Medicare Modernization Act, which brought prescription drug coverage to the program, were thinking along the same lines during 2003 negotiations when they included a warning system in the bill. It alerts Congress and the president when Medicare general revenue spending hits 45 percent of total outlays in two consecutive annual reports in a seven-year span.

For the first time, this incorporates both Part A and Part B into the financial outlook picture so lawmakers can get a more realistic idea of where the program is going. When the 45 percent limit is triggered, the MMA requires the president to introduce legislation to fix Medicare's financing. Congress doesn't have to pass it -- but it has to consider it promptly.

Joe Antos, an analyst with the American Enterprise Institute, writing in a background brief for the American Heritage Foundation -- both of which are on the conservative side -- said with the drug benefit, Medicare will hit the 45 percent trigger by 2013, six years shy of Part A crunch time.

"And even that might be optimistic," Antos wrote. "Spending for prescription drugs might grow more rapidly than projected, and Congress might make the benefit more generous or make changes elsewhere in the program that raise spending without adding to earmarked revenue."

Medicare will not save taxpayers any money and it will not go bankrupt, but it will at some point begin to spend billions of federal dollars -- a so-called unfunded liability -- coming from some yet to be determined account in that IRS computer. Just how that happens is what Congress, the media and health analysts need to begin seriously considering in 2005.

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E-mail ebeck@upi.com