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 When President Lyndon Johnson signed the law, half of Americans age
65 or older had no health insurance. Today, just 2 percent go
uncovered.
And the public really, really likes Medicare, which last year
covered 54 million Americans. A poll released earlier this month by
the Kaiser Family Foundation found strong support across political
party lines for Medicare and Medicaid, which insures low-income
Americans and became law alongside Medicare.
But Medicare still sticks in the craw of conservatives.
"We need to figure out a way to phase out this program for (people
who are not already receiving benefits) and move to a new system
that allows them to have something, because they're not going to
have anything," Republican presidential contender Jeb Bush told an
audience of conservatives in New Hampshire last week.
Bush later tried to walk back his comment, but he is not alone in
his desire to euthanize Medicare just as it hits midlife.
Fellow Republican presidential candidate Chris Christie has proposed
raising the eligibility age for Medicare and Social Security to 69.
Beyond all the noise lies an important question: how to best pay for
health care for our aging population.
In 2050, the 65-and-older population will reach 83.7 million, almost
double what it was in 2012, according to the U.S. Census Bureau.
That, along with rising healthcare costs, means Medicare will
account for a rising share of the federal budget in the years ahead.
The line of attack against Medicare is that its finances are not
sustainable, but what we really have is a healthcare cost problem,
not a Medicare problem.
The program is funded through two trust funds.
The Hospital Insurance fund, which finances Medicare’s Part A
hospital benefits, receives money mainly from the 1.45 percent
payroll tax that employees pay and employers match. This fund is
projected to run dry in 2030, leaving Medicare able to meet only 85
percent of that part of the program’s costs.
Meanwhile, the Supplementary Medical Insurance trust fund finances
outpatient services and the Part D prescription drug program. It
gets 75 percent of its funding from general tax revenues and 25
percent from yearly premiums that beneficiaries pay. It will stay
solvent because contributions are reset annually to match
anticipated spending, but that is expected to put more pressure on
government and household budgets in the years ahead, especially if
healthcare inflation takes off.
Medicare actually does a better job of restraining spending growth
than private health insurance because its massive size gives it the
power to set prices that providers will accept. And the Affordable
Care Act mandated constraints in provider payments that have been
paying off.
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Medicare spending has been slowing in recent years. Reflecting that,
the annual Part B (outpatient services) premium has been flat at
$104.90 for the past three years.
Medicare’s trustees projected last week that the program’s total
spending as a percent of the gross domestic product would rise from
3.5 percent to 5.4 percent in 2035. That is "not nothing, but
neither is it insurmountable,” says Jared Bernstein, an economist
and senior fellow at the Center on Budget and Policy Priorities.
The gap can be closed through efficiencies. We could change the law
to allow the government to negotiate drug prices with pharmaceutical
companies, for example. Or a small increase in the Medicare payroll
tax from 1.45 percent to 1.8 percent would do the trick.
The conservative plan, however, is to reduce the value of Medicare’s
benefits. That can be done by raising the eligibility age,
effectively a lifetime benefit cut, or by replacing the program’s
set of defined benefits with something called "premium support."
With that, people would receive a voucher that they could use to
purchase private insurance plans. Bush was showcasing that idea in
his New Hampshire remarks.
A phase-out or redesign of Medicare will mean higher out-of-pocket
costs in a program where the median income of enrollees is just
$23,500 per year.
“These folks would unquestionably be worse off in the absence of
Medicare,” Bernstein said.
Instead, we should continue working on reforming the delivery of
care and negotiate savings with pharmaceutical companies.
And we should wish our most important health insurance program a
happy birthday. Medicare, you are part of the solution, not the
problem.
(Editing by Beth Pinsker and Lisa Von Ahn)
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