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  • Medicare Needs a Budget and Structural Reform

    Medicare faces a dismal future that could threaten its very existence. In two recent papers, Stuart Butler, Ph.D., and Robert Moffit, Ph.D. of the new Heritage Center for Policy Innovation analyze the problem and offer detailed solutions on how to reverse course.

    Butler explains that many objections to Medicare reform are fueled by myths. For instance, many Americans believe that seniors have paid for their own Medicare through payroll taxes. But in reality, only Medicare Part A is financed through payroll taxes. Parts B and D are voluntary and financed through a combination of beneficiary premiums (covering just 25 percent of costs) and subsidies from taxpayers.

    Next, Butler points out, there is no true Medicare trust fund. The program operates as a pay-as-you-go system, meaning revenue immediately goes out the door to pay for current benefits. Another myth is that the payroll tax is a premium and quite different from the income tax. Butler explains, “Since the Medicare payroll tax, unlike the Social Security tax, does not have an income cap, it is actually indistinguishable from a regular income tax bracket.”

    Another big misconception is the notion that adjusting Medicare benefits based on retirement income would be a radical change. This is false; wealthier seniors already pay higher, income-related premiums in both Part B and Part D.

    Recognition of the Medicare reality is essential for reform. From there, the first step is to put the program on a budget. Medicare is currently categorized as “mandatory” spending, which allows the program’s cost to grow on autopilot. Its budget is open-ended, and spending is determined by whatever the hospital, drug, and physician bills add up to. Instead, Medicare should operate under a real long-term budget, similar to other federal programs like defense.

    There is bipartisan consensus that Medicare spending should be capped; in fact, Obamacare has already introduced a top-down spending cap on the program. But without the right fundamental changes, this alone is insufficient to control costs. The next, big step is to transform the program into a premium-support system, a defined-contribution system of financing.

    Moffit’s in-depth analysis explains exactly how to move Medicare to this type of consumer-driven system. It would allow seniors to choose their own health plan and receive a defined contribution from the government to offset its cost. Seniors would have access to affordable, adequate benefits, regardless of age or health condition. As Moffit points out, one model of premium support, “the Federal Employee Health Benefits Program (FEHBP), serving federal workers and retirees, has been a popular and successful premium-support program.”

    As Senators Richard Burr (R–NC) and Tom Coburn (R–OK) wrote in a recent Politico editorial, “The way to save Medicare is to build on what is working.” Moffit shows in his research that the FEHBP has outperformed Medicare in every dimension of performance: “It has better benefits, better service, catastrophic limits on what enrollees must pay, and far better premium cost control.”

    A consumer-driven, market-based Medicare program can foster competition and control costs without sacrificing quality of care. Patients would be able to seek out and receive better value for dollars spent, impacting the entire health care system. And Moffit’s research shows the benefit for the federal budget: “Based on the estimates of the Heritage Center for Data Analysis (CDA), a Medicare premium-support program would yield $702 billion in savings over 10 years beginning in 2016.”

    Butler states, “Patching the framework, or tweaking it at the edges, is not going to address the long-term weaknesses of the program or the enormous financial load it adds to the country’s structural financial problems.” Instead, Medicare needs structural reform that works. To learn more about the Heritage Foundation’s comprehensive budget reform proposal, which includes transformation of Medicare, visit Saving the American Dream.


    Posted in Featured, Obamacare [slideshow_deploy]

    9 Responses to Medicare Needs a Budget and Structural Reform

    1. Jeff, Illinois says:

      Hasn't Medicare been an extremely helpful program to millions? If there's any issue with supporting it . . couldn't we just cut back the military budget a bit to support it? I heard that our military spends many more times the total being spent by all the other possible combatants combined. I think we can well afford to shift our budget a bit to support social programs. I believe I read that the military is spending twice what it was spending during the last administration.

      • Bobbie says:

        Jeff, please open your mind to the fact that the fed government really has no obligation to our health except to those matters of pandemics. Since government has grown way beyond it's Constitutional intent through their own influence on the people, America is once again held up by outside government, their incompetence and ungodly corruption!

    2. Agnes says:

      This is a great article. It well written and true. It should be required reading by all members of congress. Unlike most bills passed by congress it is short and to the point.

    3. Todd says:

      "Medicare faces a dismal future that could threaten its very existence." This statement says it all for Medicare, and Social Security. The programs have not fundamentally changed since their creation. It is time to make them stable again, so that they can continue to be an "extremely helpful program to millions", as articulated by Jeff. But to update both programs, two fundamental principles/mindsets must be implemented/followed: 1. Those who are currently in the programs and those who are about to enter the programs must be promised that their coverage WILL NOT change. The governemnt made them a promise and it must own up to that promise. 2. Those who are just entering the work force or have more than 15-20 years to retirement, have to understand that they will not get the same promise as their parents and must take some personal responsibility for their own future. If either of these ideas are not adhered to, any change to the programs is doomed to failure.

    4. C.Adli says:

      I practised surgery for 25 years.All under the Medicare and private insurance.I charged for a surgical procedure only one price.I did not itemize for little things speratly.Surgical fee included 90 days 0f care no charge except X-rays Lab. and any kind of dressings.But The Trial Lawyers were not 1000 lbs. gorilla on my back But they were getting there slower than now.Workmen'Comp. was not rampant.Physical Therapy mostly were thought at the physian's office.We used casts rather than expensive Splints.Cheating was not rampant.If our so called ;Politicians; get there acts together work for the;Country; rayher than for there pocket,we can get back to;The Good Times;

    5. Bobbie says:

      it's a good idea to build on what works but that seems to be the target of destruction when it comes to democrats. i don't like to witness what my elderly father is put through presently. What should be as simplistic as possible is confusing. it's like they've divided what works together to create more choice to the patients and more make-work for the government that leads to more cost and invites more corruption!? too many choices adds not only stress but more health problems. gosh, I hope things change for the better of all but the unconstitutional government.

    6. Kathleen Clark says:

      If the government would address the fraud in Medicare, within the government and within the medical system itself, Medicare wouldn't be in such dire straits. Oh, there would still be problems, for one because of the $500 Billion taken from Medicare in future spending when obamacare was passed. Seniors have a difficult time as it is, without adding to their financial crunch. Taking away from the military budget isn't the answer though. Our soldiers need better equipment as it is. Maybe, we don't need 900+ bases around the world though!

    7. Rock Cramer says:

      Defined contribution premium support whether for Medicare or Medicaid is the ONLY alternative to the “Reaper Curve” and “death panels.” That this undeniable truth seems to be such a logic leap for so many is at the core of today’s debate on the public cost of medical care. It’s undeniable that the Reaper Curve model is applied in its many forms by every country that has public paid (writ “free”) medical care. Human nature is what it is. To be sustainable, premium support can mean no more than some level of assistance in a Basic Hospital Surgical insurance policy, i.e., no other special coverage mandates. Also necessary are a cap on malpractice awards and some form of wage garnishment procedure for those that show up at emergency rooms without medical care insurance. So perhaps the choice is not so easy. For 90% of us at any given time, the consequences of the Reaper Curve model are someone else’s problem. The premium support model is easily argued as a loss of benefits to many the moment it is seriously considered as an alternative. Here is the real barrier to sensible and sustainable medical care policy.

    8. Rochelle says:

      There are some very good ideas on reining in the out of control costs of Medicare. Heritage Foundation has presented these. We need to stabilize the changes for those presently in Medicare or very soon to be. The Medicare Fund should be just that and not another source of monies for Congress. Future Medicare payments should be more like Premium assistance for an insurance the person chooses themselves. If the patient is paying the providers of medical care, they will begin to see the effects of a free market. But before we can get to this, we must see Obamacare dismantled and thrown on the ash heap of history!

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