Saving Medicare

 

Medicare is popular. Now that I’m personally on Medicare, I’m not as enthusiastic as I was before. It’s certainly not inexpensive even though I’ve been subsidizing it for the last 50 years. Like Social Security, you have to keep on paying for it in taxes as long as you’re working. But it does have its usefulness and most doctors still accept Medicare, though that could change quickly if provider fees keep declining.

So the important question for us all is how to keep Medicare financially solvent. While Democrats are pushing for Medicare For All, a far bigger expense than the current system, right now we have to figure out how to keep Medicare available for seniors for years to come.

John F. Early, writing in The Wall Street Journal, has some recommendations that should receive bipartisan support. Some background statistics are first needed so we can all grasp the severity of the problem.

Medicare spent 3.6% of gross domestic product (GDP) in 2016, more than six times the share it consumed in 1967, the first full year it was implemented. Early says the forecasts he has analyzed show that the share of GDP will rise to at least 9% within 75 years – and that’s the best-case scenario. Others suggest Medicare could spend more than twice that.

A spending jump to 9% would require a roughly 17.4% increase in all federal taxes or a 30.5% cut in other entitlement and discretionary spending, or some intermediate combination – otherwise we’d be likely to see a Greek-crisis level of debt within 18 years. If the worst-case scenario applies, we would need to raise taxes by 36.33% or cut 91.76% of other spending. And all this assumes Congress doesn’t do something stupid like passing Medicare For All in the meantime.

Three Fixable Problems

Early says the Medicare eligibility age is too low. It has remained at age 65 since its inception in 1967. That year the average 65-year-old American was expected to live 14.8 more years. In 2016 the average 65 year-old lives 19.3 more years – roughly a 30% increase in life expectancy. The government has not adjusted for this change.

He recommends incremental increases in the age of eligibility; approximately 3-4 months per year. This would synchronize with the rise in Social Security’s full retirement age so that both would reach 67 by 2027. This gradual rise could continue until 2072 when the eligibility age would be 73 and the average length of coverage would then return to the original duration of 14.8 years. After that point, the threshold could rise more slowly, having made up the difference that has accrued over the past 50 or so years.

The second problem is the rise in the proportion of the working-age population classified as eligible for disability under Social Security– which is covered by Medicare. There has been a four-fold increasesince 1972. The solution is to restore the original disability standard – which has become lax – so that people qualify for benefits only when they are “unable to work any job in the economy.”

The third problem is the rise in consumption of medical services. The average beneficiary today consumes six times more medical services than in the previous generation, even without counting the drug benefit introduced in 2006. This is because beneficiaries pay 68% less in deductibles than the previous generation and coinsurance rates are steeply discounted.

Since 1989, 20% of beneficiaries who are designated as low-income have been excluded from paying deductibles, coinsurance or premiums. These people consume 42% more services than other beneficiaries, even when adjusted for health status. (The increased use of services is not related to their health.)

The solution to this problem is adjustment of deductibles and coinsurance to fit those in the private market. Early says the current Medicare deductible for professional services is 11% of the average commercial insurance product. He suggests this needs to rise to 25% of the average commercial rate for the next 20 years and then up to the full average rate over the following 10 years. Coinsurance can remain at the below-market rate of 20% for 30 years, but after that Medicare will also require low-income beneficiaries to bear some cost increases.

This may seem like a bitter pill to swallow but the changes Early recommends are gradual and should be tolerable for most families. Remember, Medicare is not a program for the poor; it is a healthcare system for seniors. With the rising popularity of Medicare Advantage programs, most seniors find this very affordable. With these adjustments, those seniors should be able to count on Medicare for generations to come.

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