Real Health Care Reform- Part 6: Medicare
One thing that struck this writer when Obamacare was debated was how readily the liberals dropped the notion of universal health care covered by the government. Of course, I soon realized that Obamacare was a backdoor way of achieving that goal. By making it financially unfeasible for employers to offer insurance, for example, Obama and company knew full well these people would be dumped onto the public dole. Likewise, the same can be said about the expansion of Medicaid to families with relatively high incomes. To understand the folly of government-run universal health care, all one has to do is look at that debacle called Medicare. Instituted in 1965, it was designed to provide health care for those over age 65 and was funded by FICA taxes. Within the first 4 years, spending went through the roof and has been fluctuating ever since. Today it is estimated that if reforms are not enacted, Medicare expenditures will rise to $3 trillion even if the 2013 FICA increases for those making over $200,000 go into effect. In 75 years, the unfunded liability will be $11.6 trillion!! To fund Medicare for recipients in 2030, employee FICA taxes would have to rise to 8.75%.
One major problem is structural and demographic. Simply, the American population is growing older and the drain on the system caused by chronic disease is increasing. Also, there are less and less workers paying into the system. If there are not enough people, the government has three choices: increase the number of people who pay FICA taxes, decrease benefits for future recipients, or make current payers pay more now. None of these choices are very popular. Increasing the pool would entail making pension annuities, unemployment insurance and the like subject to FICA taxes. Obviously the best choice is increasing the number of payers through lower unemployment. Also, does it make sense to automatically cover a 65-year-old worker who is still in the workforce and covered by health insurance? Also, unions are moving away from cadillac plans that covered survivors, thus dumping more people onto Medicare.
Almost half of Medicare recipients could be considered the “working poor.” More than a third have serious chronic health conditions. There are over 5 million Americans receiving Medicare benefits for over 20 years wit almost 2.5 million in expensive long-term care. Additionally, Medicare was made available to those with disabilities under the age of 65. Obamacare wanted to or seeks to move the age of eligibility to 55, thus moving us closer to a stealth universal health care system.
Reimbursement rate determination is a complex and quite stupid system. In 2002, doctors had their rates decreased 5.4% which led to many retirements, thus decreasing seniors access to health care. That is the last time it happened. The scheduled decrease in rates are predicated upon a formula tied to changes in GDP which then calculates the sustainable growth rate (SGR). As the SGR increases, it supposedly kicks in reiumbursement decreases unless Congress acts- the so-called doc fix. The problem is that as these decreases take effect, more doctors opt out of accepting Medicare patients. If triggered as planned, doctors would see yearly 5% decreases, but this has not happened in a decade, and those non-decreases are funded through hidden taxes on employers and tax payers, or taxes on cadillac plans under Obamacare, unless you are a Democratic special interest group (a/k/a union). One solution is to unlink SGR from GDP. As GDP growth slows, the SGR increases and reimbursements decrease. This is counter-intuitive. during slow periods of GDP growth- usually associated with economic slowdowns- is exactly when people are most reliant on Medicare.
The Ryan plan, as I understand it, makes the greatest sense. It would not affect those reaching retirement (age 55-65) and current beneficiaries (age 65+). However, eventually, it would be abolished through attrition. For those under 55, there would be a payment once one enrolls in a health plan. When fully phased in over a 20-year period, the full amount would be $11,000 or about what Medicare pays per beneficiary now. It is akin to a refundable tax credit however enrollment is first required and the credit is applied directly to the insurer uon proof of insurance. Any money left over is not a “bonus, but can be placed in an optional Health Savings Account. Under Ryan’s plan, the person can purchase insurance from a former employer, the private market, or from an exchange set up by Medicare itself. The $11,000 credit, once fully phased in, would be indexed to the CPI minus the health care portion. These new private policies would then replace existing parts of the Medicare program rendering Part C obsolete. The benefit is income related with higher earners receiving a lower benefit. Geographical adjustments would be phased out over time. However, payments can be risk adjusted based on health conditions. As the law stands now, insurance companies have every incentive NOT to insure those most in need of insurance. By verifiable risk adjustment, the government can remove these disincentives by picking up the tab to a certain extent. If companies are going to use pre-existing conditions for higher premiums, then programs that mitigate the conditions- like smoking cessation and weight loss- would have to be rewarded by lower premiums.
The Ryan plan for Medicare maintains the basic structure and promise to our senior citizens. It simply takes the government out of the market and makes consumers responsible for personal choices in order to drive costs down. Granted, it does represent a massive government subsidy, but what is Medicare today? In terms of the budget, the Ryan plan may not be that big of a decrease, but it does instill free market ideas- more so than Obamacare- and it removes some uncertainty regarding future actuarial concerns. And it may just have the effect of driving costs down in the long run.