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  • One Solution to Tackle Budget-Busting Medicare

    In the greater context of the health care debate, Medicare — the government’s health insurance provider program for the elderly — often is mentioned in passing as a program to make cuts and save billions, so that Congress can spend more than $1 trillion to overhaul the health care system.

    But, what’s often overlooked is the program’s colossal unfunded promises, which are on track to choke the nation’s budget in less than a decade. “There are four things that no one in Washington is arguing about Medicare,” said J.D. Foster, a senior fellow with Heritage:

    • Medicare is unsustainable, with a projected 85.6 trillion in unfunded obligations as of 2007.
    • Higher taxes will not be the solution to make Medicare financially sustainable.
    • You cannot resolve Medicare’s unfunded obligations by “tinkering around the edges” of the program. While saving money by ridding the system of fraud and waste is a laudable goal, doing so does not solve the larger problem.
    • Medicare needs a lot of reform. But lawmakers need to achieve the “must-does” before the move on to the “should-be-done” reforms.

    Eliminating Medicare’s total excess costs might be ideal, but to “really get this done, Congress needs a notion of what is sustainable for Medicare,” Foster told the audience of a recent Medicare discussion at Heritage.

    One place to start is the amount of money needed to finance Medicare. In 2008, the program received general revenues equal to about 1.3 percent of the gross domestic product. This is a large number, but it was apparently manageable for the government, Foster said. So if Congress set the program’s support ceiling at 1.3 percent of GDP, it would have a sustainability target of cutting Medicare’s unfunded obligations by roughly $67.8 trillion.

    That’s still a large number, but more attainable than the total $90 trillion that comes when you look at the unfunded obligations plus a $4.4 trillion cost of likely “doc fix” legislation. Current law requires specific cuts in payments to doctors who see Medicare patients, but year after year Congress has delayed these cuts and even raised reimbursement rates, raising Medicare’s costs. (Note: These additional costs aren’t in the Medicare Trustees’ estimates).

    Since Medicare is unsustainable in its current form and all beneficiaries receive an average annual subsidy of more than $4,000, an obvious reform is to require upper-income seniors to forgo their subsidies. They would do this by paying higher premiums. This already occurs to some extent in Part B (which pays for seniors’ outpatient health care services like doctor visits).

    “In Part B, you have phased-down subsidies,” Foster explained, “and the issue is that even though they are income-adjusted, you still have seniors making more than $500,000 who still receive a subsidy for the Part B program.”

    Foster was quick to point out he’s not looking to add on more Medicare expenses to low-income seniors or deny seniors access to the Medicare program.

    But if the government altered the subsidy phase-down so that it applied to the whole program and extended it so that older Americans making more than $660,000 would stop receiving subsidies, the program’s unfunded obligations would fall by $44 trillion.

    William Gale, vice president and director of economic studies at The Brookings Institution, called the idea “a real solution.” “People have been talking about reforming Medicare but they offer not details. This is a huge step in filling that space,” he told the crowd.

    “Obviously, you need to give it the ‘ole Samsonite luggage test, but the idea that there could be real measures in Medicare is a big step forward.”

    Posted in Economics [slideshow_deploy]

    5 Responses to One Solution to Tackle Budget-Busting Medicare

    1. John Walker, Abilene says:

      $660,000- good grief! And here I am with a fixed net of under $50,000 per year worrying about losing my medicare benefits. I would think that some one with $250,000 per year could provide for their own medical expences.

    2. Pingback: » Financial News Update - 07/30/09 NoisyRoom.net: Where liberty dwells, there is my country…

    3. Andrew, Michigan says:

      If cuts in benefits are going to be applied to Medicare recipients in paying for the Obomacare. Then why are criminals who are incarcerated (for whatever reasons) are they recieving the full range of health benefits as required by laws? This seems backwards and is a very significant point for me. I think it is an unwise move for USA to retract the promises of medicare as this will massively negate any credability of the US Gov. for generations to come.

    4. Spiritof76 says:

      How many times do we have to prove that government-run anything does not and will not work-not now, not ever.

      Just like the old Soviet Union found out when they tried to privatize their government-run enterprises, their actual values were near zero. Same thing with Medicare, Social Security and every thing else the government has gobbled up recently-all worthless.

      Privatize Medicare from top down with the residuals only for those poor and completely destitute. Either we do it now or face he catastrophie later. Guess which way politicians and the sheep will go?

      Insurance should only be protection against life-treatening diseases. For everything else, pay cash in an open and free market with all the trail lawyers disabled on the sidelines.

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