Is Medicare Bankrupt?
Published September 08, 2009 @ 09:36PM PT
Well, if you know people on Medicare, the answer is obviously no. The government is still picking up the tab of at least a majority of their health care day in and day out. From what I hear from doctor friends, Medicare even pays more promptly than private insurance. Still, we’ve been hearing the “Medicare is bankrupt” canard on cable and reading it on protesting signs in town halls all summer. I’m not sure I understand the through-line of the argument, but my guess is that if Medicare is having financial difficulties, it proves we shouldn’t rely on government to solve our health care dilemma and should instead look to salvation from the free market. Except all available data suggests the single best thing we can do for Medicare is not to turn Medicare over to the free market. We tried that. It made things worse.
Call me old-fashioned, but I define bankruptcy as being insolvent -- your debts exceed your assets to such an extent that you can never pay them. That’s not the case this year for Medicare, nor the next, nor the next. Based on the actuarial projections of the Medicare Trust Fund, which is tasked with annually reporting to Congress on how the bottom line looks, the point where Medicare will pay out more than it takes in -- even by a penny -- won’t occur until somewhere between 2014 to 2028. But that presumes no changes in how Medicare income or spending. Either could be adjusted well before that point. Both have been adjusted at various times in the past well before the point of insolvency. Put another way, the Department of Defense budget is raised every year, usually in lieu of asking it to cut its budget substantially, but when’s the last time someone said the DOD was bankrupt?
But why is Medicare’s current financing structure insufficient in perpetuity? Kaiser Family Foundation has an excellent primer on this topic, based on the Medicare Trustee Report, the Congressional Budget Office, and the reports of the Medicare Payment Advisory Committee, going back for years. The reasons why are pretty obvious. None of them have to do with the bugbear of government incompetency.
The major reason is that health care costs have gone up for all payers, public and private, and dramatically so. Since 1970, health care costs have gone up for Medicare by 8.5% annually – but for private insurance, it’s 9.7%. Unlike private insurance, Medicare doesn’t have the option of pricing its product out of reach of new beneficiaries, dropping coverage on existing beneficiaries, or finding reasons not to accept new beneficiaries who look like they might have future health problems. Medicare has a lot of trouble controlling health care costs, and that’s largely driven by geographic variance in payments to doctors and physicians and the perverse incentives of fee-for-service payment, which incentivizes more care instead of better care. Guess what? Private insurance has the exact same problems. (Hey pot, it’s the kettle – you’re black!)
Medicare is also growing pretty quickly thanks to the baby boomers -- about 587,000 per year. The number of people with employer-based insurance has been on a slow but steady decline.
Luckily, we’ve known about this future problem for a while, and we were, er, lucky enough to have champions of the free market and conservative principles in Congress and the White House when we set about tackling the problem over the past decade. One solution was the institution of Medicare Advantage plans, where beneficiaries could opt-out of traditional Medicare and enroll in an HMO. As mentioned on this blog many times, the problem is the Medicare Advantage plans cost 14% more per beneficiary than traditional Medicare for no demonstrably better outcomes – and now we have about 11 million Americans enrolled in them. That waste adds up. As stated in the Kaiser report, “strictly from the perspective of program financing it is undisputed that Medicare Advantage payments have added to the cost of Medicare borne by the government.”
Much, much worse has been the prescription drug programs. It was supposed to use private drug plans in competition to drive down costs, until all kinds of pharma-friendly provisions were added in by the likes of Rep. Billy Tauzin – the same Billy Tauzin who went on to become president of PhRMA. Again, from the Kaiser report, “Two-thirds of the $72 billion increase in Medicare expenditures from 2005 to 2006 resulted from the implementation of Part D.”
And yet, Medicare’s financing is solvable. If the annual rate of growth was a mere 1% above the growth in GDP instead of our current pace of +2.5%, we’d cut our spending in half by 2038. You can imagine how good our Medicare Trust report would look then. As it just so happens, we have a plan on the table to accomplish exactly that – and benefit those in the private insurance system as well. It’s called health care reform, and we need it to pass this year.
(Photo credit: http://www.flickr.com/photos/flem007_uk/ / CC BY 2.0)
Share this Post
Facebook
Twitter
Digg
StumbleUpon
Delicious
EmailRelated Posts
-
8 Things You Need to Know About the New House Health Reform Bill
-
What if MedPAC Rules the World?
-
"Like Medicare?" We Love It!
Comments (16)
Comments on Change.org are meant for further exploration and evaluation of the ideas covered in the posts. To that end, we welcome constructive comments. However, we reserve the right to delete comments that are offensive, abusive, or off-topic; that contain ad hominem attacks; or that are designed to subvert or hijack comment threads rather than contribute to them. Repeat offenders may be permanently removed from the site at our discretion.
Author
-
Tim has been an online organizer and blogger on health care policy for the Obama for America campaign (during the primaries) and currently for the Committee of Interns and Residents/SEIU Healthcare, a labor union for intern and resident doctors. Views expressed here are Tim's, and don't represent the positions of CIR or SEIU.
Featured Health Care Actions
-
-
-
Joe Lieberman: Don’t You Dare
2888 People
-
Joe Lieberman: Don’t You Dare
It's like we have similar brains - yours is smarter though. I make these same points over and over again to people who scream at me that Medicare is bankrupt. Same thing with Social Security, when we last fought that battle. They don't get it. They stop right where you say - Medicare Bankrupt. Government Bad.
Posted by robin stelly on 09/09/2009 @ 05:04AM PT
You must be signed in to report content.
Medicare also pays for: all medical residencies; for many disabled persons; and much of the expensive equipment in hospitals (according to John Geyman, MD - "Falling Through the Safety Net).
All other industrialized nations have decided that all their citizens have an equal right to access health care regardless of the income or life circumstances. They have all eliminated for-profit private health plans as major players in their health care systems. They pay half as much and have as good or better medical outcomes (per capita) as we do. Sure we have the best medical schools, best doctors, best health care - for some of us. We rank 37th in the world by WHO not because we don't have the best of the best, but because we do not distribute that "best of care" to all our citizens because we allow for-profit health insurance companies to make money by denying & restricting care.
So, some of our citizens are more equal than others. Do we want to be a "dog eat dog" nation or do we want to live the values we espouse - we are all created equal?
Get rid of the for-profit health plans and there will be more than enough money for everyone to have access to high quality health care (400 billion extra dollars each year to start with). For-profit plans do not provide health care nor do they put in any money other than what they collect from us through our premiums. They are unnecessary, immoral middlemen.
Posted by Christine Adams on 09/09/2009 @ 06:11AM PT
You must be signed in to report content.
I agree Christine. There are hidden cost with long term disabilities. The private sector fails to provide and forces an individual into medicaid so that coverage will be affordable. I wish that I could see the statistic of how many people had to quit a job or get divorced just so that they could qualify to get care from an underfunded medicaid program.
I am in that boat with my wife and have talked to several people that had to do the same thing. No wonder it is underfunded when people are pushed that way. All of nothing. What a choice now. I am going to get 100 percent of my wife's care taken care of at tax payers expense just by getting a divorce. which is kind of tricky because I am also her guardian and caregiver. So the lawyer are winning now till I get them all paid. Otherwise with the good insurance that I have I pay 100%. If there was an option I would not have to divorce and call the expensive thing off and even actually pay for the benefits that she could receive at an affordable rate. We are not taking care of our disabled and long term illnesses Insurance that you pay for does not do the job. When we see the people in the medicaid world offering hope for recovery , then you do what you have to do.
If there was an option plan people could keep the job, stay married and lighten the tax payers pocket. Not to mention that when we do divorce she gets SSI, food stamps, and a plethora of free-bees. I had real moral problems with the term "divorce". I still do a bit. But her doctors are routing for her and everyone says that it is pretty much standard as an option since she will need much more medical attention throughout her life. I just can't help to wonder what would medicaid be like if there was an option that worked and wasn't milked dry by the industry. I would rather stay married, but it is not good for her outcome. I don't mind paying I just wished there was and option that actually worked now. I have paid into insurance for many years thinking it will be there if and when I needed it. The whole family has been responsible and healthy, never needing to use it beyond a cough or a couple of stitches. I even have the best plan chosen from my employer. People tell me how good it is that have it. It wasn't very good at all when my wife acquired a severe brain injury. I have seen a different side of things since then. There are millions of people out there just like her living with similar disabilities. They all seem to have the same problems in dealing with insurance that just does not work like most people think that it does.
As for hospitals, they do normally run in the red. What if everyone had insurance that even worked? Would they have to charge 20 bucks for a 50 cent paper gown to recoupe money from the uninsured? There are several hidden costs that keep piling on now.
LONG TERM health-care is what we need It can happen to anyone at a snap of a finger for no apparent reason. We are not getting it from the insurances that we pay for now.
Posted by Joe Ward on 09/09/2009 @ 09:44PM PT
You must be signed in to report content.
I think your best point here is that "bankrupt" in terms of the way the word is normally defined, doesn't apply; that's a far cry, as you admit, from saying that Medicare doesn't have some substantial structural problems, and that those problems matter immensely to what we can reasonably pay for going forward.
So here's what concerns me about the issues you raise:
- it's easy to say "Let's limit the growth of medical spend" but as you also point out... Medicare has historically failed to accomplish that. There's very little to suggest that will change.
- ... and, this post ignores the fact that reimbursement rates, which have not changed much in years, are at a breaking point for hospitals and docs; it's likely that there will have to be substantial upward revisions to basic reimbursement rates this year, or maybe next if they can get away with stalling a little longer... but the point of doing nothing is long past.
- also, money isn't just going to sppear from the air; there's little appetite for taxes, none for raising Medicare premiums, and endless pressures to increase spending. That's unsustainable, and the crux of the problem.
Finally, as I've said repeatedly, it's easy to say nice things about Medicare; the far more devastating problem, and the place where there are only terrible answers, is Medicaid, and the silence is deafening, here and elsewhere, on just how bad Mediciad is, how much states are hurting trying to fund it, and the likelihood of enormous cuts coming very soon if nothing is done (and so much of this, really, is tied to healthcare reform and may be an easy out by just setting aside the mediciaid piece as the "too expensive" part). Meicare is a part - but only a part - of an enormous funding problem and a painful discussion about cost control. We're not having it... and I'm not sure this post gets us much closer to looking at the hard choices.
Posted by NYC Weboy on 09/09/2009 @ 07:58AM PT
You must be signed in to report content.
re: Medicaid
You may like this Ezra Klein post
re: where to get the money
It's there but getting it will require grown up decisions that will not be without pain. A good place to start thinking about where to get it is this CBPP report: http://www.cbpp.org/cms/index.cfm?fa=view&id=2908 Another place is the military budget, which, as Tim mentioned is wrongly considered sacred. We waste billions on nuclear weapons alone. Another thing to consider is that with the expansion of coverage, we're going to see an expansion of customers for providers and a decrease in uncompensated care - give backs from providers make sense in that context.
There will be pain. Since Reagan we've been taught to believe that we can have something for nothing. If we continue to refuse to invest responsibly in our social safety net and the development of our infrastructure (medical, transit, energy, education), then we will continue in this spiral of costs outpacing revenues. When Reaganism is finally dead, we'll see change for the better take hold.
Posted by robin stelly on 09/09/2009 @ 08:53AM PT
You must be signed in to report content.
"reimbursement rates, which have not changed much in years, are at a breaking point for hospitals and docs"
But something is driving up these costs. It isn't just that insurance is inefficient. Insurance has failed to contain these costs. Even if we strip out the admin costs and profit from insurers, we'll still be spending too much of our GDP for health care.
After the insurers are gutted (and I'm behind that 100%), what's next but practitioners and hospitals? I think PCPs are getting the shaft but the expensive care is coming from specialists whom we may easily judge to be overcompensated and from hospitals which are not using their resources efficiently. Together, their soaking us for elder care.
As for the appetite for taxes, you're right but the upper income tax base is there, FICA taxes are awfully regressive, and being super rich has lost a lot of its lustre.
Posted by Harold Lewis on 09/09/2009 @ 01:36PM PT
You must be signed in to report content.
If health spending grew just one percentage point faster than real per capita income, 53.6 percent of real income growth would go to health care over the next 75 years...
http://content.healthaffairs.org/cgi/content/abstract/28/5/1253
The talking heads on the boob tube are saying the public option is dead; that it is not an "essential ingredient" of reform. Nonetheless, one thing essential to health care reform is that health care inflation be reduced to the inflation in real per capita income. The public option would only be one rather efficient tool the government could use on behalf of the American consumer to get there. So let's get rid of it..
Our health care troubles are like our environmental troubles, they are self-inflicted. Unhappily, the American answer to everything, is "let the market take care of it." (Except when Wall Street is in trouble) We are very much like an ancient people living next to big volcano who refuse to move.
Posted by Martin Bring on 09/09/2009 @ 10:13AM PT
You must be signed in to report content.
"Nonetheless, one thing essential to health care reform is that health care inflation be reduced to the inflation in real per capita income. The public option would only be one rather efficient tool the government could use on behalf of the American consumer to get there. "
Please explain. I don't see how a public plan would be an "efficient tool" to reduce health care inflation.
Posted by Mark O on 09/09/2009 @ 10:48AM PT
You must be signed in to report content.
Republicans feel the Public Option will be a slippery slope to Single Payer.. If they are right, the Public Option will be a success beyond my wildest dreams.
If the Public Option only forces all private health insurance companies to be non-profit, then our health care system will be like Germany's or Switzerland's; another big improvement.
If the Public Option is allowed to honestly compete for customers, it will be, IMHO, a rather effiicient tool the government COULD use on behalf of the American consumer ... the operative word being COULD. :)
Posted by Martin Bring on 09/09/2009 @ 03:49PM PT
You must be signed in to report content.
As for Medicare solvency, in 2008 there were $184.8 billion of transfers from general revenue into the program, and god knows how much will be next year. There will have to be massive tax increases and benefit cuts ALREADY before even looking at the costs of a government health insurance program.
Posted by Mark O on 09/09/2009 @ 10:56AM PT
You must be signed in to report content.
Mmmm... no. Please read the document or the Trust Fund's report. The Trust fund was a mere $4.7 billion short in 2008, although of course that is expected to grow over time. The addition of general tax revenue is how we pay for Medicare Part D and Medicare Advantage. It's not that Medicare is insolvent and we had to prop it up -- that's the actual funding mechanism for those two programs as prescribed by law.
Posted by Timothy Foley on 09/09/2009 @ 11:14AM PT
You must be signed in to report content.
You got me there. I still have got to point to $107 trillion of unfunded liabilities for Medicare/SS and conclude that the program is bankrupt with no reasonable solution in sight, other than massive tax increases or raising the retirement age to 70 or 72.
Posted by Mark O on 09/10/2009 @ 12:15PM PT
You must be signed in to report content.
Let's be clear on that absurd number. That number is spread out over 75 years and presumes no changes whatsoever to benefits, demographics, revenue, or decreasing the 9% yearly raise in health care costs.
Show me a private insurance plan which, if absolutely zero changes were made and with absolutely no possibility of improvement, enrolling healthier customers, changing the way it structures its business model to be more efficient, or changing the rates for which it reimburses, would not show a projected aggregate deficit in the billions or trillions in 2084.
And then go ahead and tell me who's going to win the World Series this year. On that, I might actually believe you.
Want to reduce that unfunded liability? Great. Let's pass health reform tomorrow. That will help a lot.
Posted by Timothy Foley on 09/10/2009 @ 12:34PM PT
You must be signed in to report content.
That's $107 trillion OVER 75 YEARS according to some sources.
http://www.dailymail.com/Opinion/Editorials/200908200687
http://www.ncpa.org/pub/ba662
But what about the report?
It says:
"The worsening of the long-range actuarial status of the OASDI program indicated in this report is principally the result of projected lower levels of economic activity that reflect the recent economic downturn and updated data, and faster reductions in mortality assumed in the longer term. Changes in the economic assumptions and the mortality assumptions contribute to about the same degree to the reduction in the program's actuarial balance.
Conclusion
Under the long-range intermediate assumptions, annual cost will begin to exceed tax income in 2016 for the combined OASDI Trust Funds. The combined funds are then projected to become exhausted and thus unable to pay scheduled benefits in full on a timely basis in 2037. The separate DI Trust Fund, however, is projected to become exhausted in 2020. For the combined OASDI Trust Funds to remain solvent throughout the 75-year projection period, the combined payroll tax rate could be increased during
the period in a manner equivalent to an immediate and permanent increase of 2.01 percentage points, benefits could be reduced during the period in a manner equivalent to an immediate and permanent reduction of 13.3 percent, general revenue transfers equivalent to $5.3 trillion in present
value could be made during the period, or some combination of approaches could be adopted. Significantly larger changes would be required to maintain solvency beyond 75 years."
http://www.ssa.gov/OACT/TR/2009/
This is a worst case. But don't worry, failure to enact the right health care reforms will drastically alter the actuarial assumptions as life-expectancy decreases. All you have to do is convince enough people that for-profit care is the way to go.
Posted by Harold Lewis on 09/10/2009 @ 01:03PM PT
You must be signed in to report content.
bankrupt -noun 1. Law. a person who upon his or her own petition or that of his or her creditors is adjudged insolvent by a court and whose property is administered for and divided among his or her creditors under a bankruptcy law. 2. any insolvent debtor; a person unable to satisfy any just claims made upon him or her. 3. a person who is lacking in a particular thing or quality: a moral bankrupt. -adjective 4. Law. subject to or under legal process because of insolvency; insolvent. 5. at the end of one's resources; lacking (usually fol. by of or in): bankrupt of compassion; bankrupt in good manners. 6. pertaining to bankrupts or bankruptcy. -verb (used with object) 7. to make bankrupt: His embezzlement bankrupted the company.
insolvent -adjective 1. not solvent; unable to satisfy creditors or discharge liabilities, either because liabilities exceed assets or because of inability to pay debts as they mature. 2. pertaining to bankrupt persons or bankruptcy. -noun 3. a person who is insolvent.
Posted by James Dunham on 09/09/2009 @ 02:34PM PT
You must be signed in to report content.
.......Medicare and Medicaid for all citizens who apply for it is H. R. 676. This is not a single payor. No one would be forced into the program. People who are happy with the insurance they have or way they get health care now could stay put.
The way to make our economy work is to stop bailing out the blood sucking hundred million dollar a year CEO's & stock manipulators who are killing ten thousand patients a year, keeping people under employed must be changed by a green jobs programs building wind and solar electric, cleaning up the air which will clean up our lungs, green jobs building mass transit and ending the war profiteers mass murdering scams for petrochemical domination of the planet.
Tell your Senators and Congressmember NOT ONE PENNY TO ANY INSURANCE COMPANY. H.R. 676 IS THE ONLY SOLUTION. Vote no on all other falsely labeled reforms. Only help modernize medicine with more life saving research. Pass a tax on all recipients of government "bailouts" who make more money than the President's salary. That is the way to recover the thefts of public funds by lobbyists. Tax excess income from people who got it from the government to begin with beyond a big salary like the President of the U.S.
Obama promised it would be that way with AIG & TARP.
Pass a tax law to make it real.
Posted by Larry Carter Center on 09/12/2009 @ 08:19PM PT
You must be signed in to report content.