The twin entitlement programs for older Americans face soaring expenses that could bankrupt the programs in the decades ahead. The first wave of baby boomers reaches normal retirement age in 2011.

    One program certain to get the new administration’s attention is Medicare Advantage, which provides coverage through private health care insurers rather than directly from the government.

    Payments to the private insurance program were 13% higher last year than the per-capita costs of traditional fee-for-service Medicare, according to the independent Medicare Payment Advisory Commission. During the campaign, Sen. Obama targeted this program for possible reductions.

    Cuts in Medicare Advantage also could be used to restore scheduled reductions in fees paid to doctors who treat Medicare beneficiaries and expand the State Children’s Health Insurance Program.

    During the last congressional session, legislators approved bills to expand SCHIP eligibility, but President George W. Bush vetoed those measures. During the campaign, Sen. Obama supported the expansion.

    “Medicare is one place you can get some budget savings for other purposes,” said American Enterprise Institute fellow Joseph Antos, former deputy chief of staff at the Department of Health and Human Services.

    “There’s a good chance of it being implemented because even the health insurance companies that might resist cuts in Medicare Advantage can see the handwriting on the wall,” he said.

    Sen. Obama also has said the federal government should negotiate lower drug prices as well as import lower-cost drugs, which they are restricted from doing under the 2003 law that added a prescription drug benefit—known as Part D—to the Medicare program.

    In addition, he has supported closing the “doughnut hole” in Medicare’s Part D prescription drug program. That’s the gap in coverage after the first $2,510 of prescription drug costs are incurred and before the $5,726 expense mark is reached.

    “While the idea of closing the gap is appealing to many, it would be incredibly expensive, and I suspect it would be a pretty tough sell,” Mr. Antos said.

    Although Sen. Obama hasn’t addressed this issue, AARP Policy Director John Rother said the new administration would have to consider how to make treatment of heart disease, cancer and other chronic conditions more efficient. They account for three-quarters of Medicare expenditures, he said.

    Medicare, which provides coverage for Americans 65 and over as well as the disabled, faces insolvency by 2019, based on current projections. Medicare spending has nearly doubled over the last seven years to $431.5 billion in 2007.

    Social Security, which is in better shape than Medicare, isn’t expected to exhaust its resources until 2041.

    Sen. Obama has called for raising Social Security payroll taxes by 2% to 4% for those making over $250,000 rather than cutting benefits or privatizing the program. The tax currently applies only to the first $102,000 of income.

    “This does a little bit to help Social Security but doesn’t come close to fixing the whole problem,” Andrew Biggs, former deputy commissioner of the Social Security Administration, said. “But there’s not a huge amount of public pressure.”

Neil Roland is a reporter with Financial Week. To comment, e-mail editors@workforce.com.