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Bad to Worse

Richard Quinn

IF YOU’RE IN a financial hole, is it prudent to keep digging?

There are 60 million Americans covered by Medicare, including 20 million who have opted for Medicare Advantage. These beneficiaries paid for their coverage through payroll taxes during their working years, and they currently pay with premiums and out-of-pocket cost sharing, as well as through taxes on Social Security benefits.

Still, this covers only a portion of total costs. In 2013, 38% of Medicare’s costs came from payroll taxes and 13% from Medicare premiums, but 41% came from general tax revenue. Our immediate problem: All of the above funding is inadequate to sustain current Medicare, let alone expand it. Medicare’s Trustees estimate the 75-year unfunded liability at $37 trillion.

But that’s not the full story. According to the 2019 Trustees Report, “The estimated depletion date for the [Hospital Insurance] trust fund is 2026… The fund has not met the Trustees’ formal test of short-range financial adequacy since 2003… the difference between Medicare’s total outlays and its dedicated financing sources is projected to exceed 45% of outlays within 7 years.”

As a group, seniors consume 36% of all U.S. health care spending. Yet Medicare benefits are deemed inadequate by many, because of deductibles and co-pays, coverage gaps and the absence of an out-of-pocket limit. As a result, most beneficiaries either purchase Medigap insurance or opt for Medicare Advantage, thereby filling some of those coverage gaps. Premiums for Medigap vary widely, but $200 a month is fairly typical. Medicare Advantage often also requires a monthly premium.

Keep in mind that this group is nearly 20% of all Americans and it’s growing rapidly—and yet now we’re debating whether to go beyond Medicare for seniors to offering universal health care to all Americans. The added cost would be significant—and I’m talking here only about seniors.

Those of us on Medicare would have all out-of-pocket costs eliminated, plus coverage may be expanded to include dental, vision, hearing and long-term “custodial” care—all areas not regularly covered by Medicare. It is estimated that 75% of seniors who need a hearing aid don’t have one. The typical cost is $4,500. Meanwhile, 70% who have trouble eating because of their teeth have not seen a dentist in a year, and 45% who have trouble seeing have avoided an eye exam. Is there pent-up demand? You bet.

What about long-term care? Covering nursing home costs is so risky and costly that many insurers have ceased selling long-term-care insurance. After initially being included in Obamacare proposals, it was dropped because it wasn’t feasible. Today, Medicaid covers 62% of nursing home residents—at an annual cost of $55 billion. What if it became 100%? What if the government started covering all kinds of long-term care, including care at home and in assisted living facilities?

So let’s think about this: We have the potential for 60 million Americans in an already underfunded program gaining substantial new benefits. Most already struggle to pay their health care costs, so it would be tough to get them to pay even more. Who will pay the added cost of universal care for me and my fellow senior citizens?

Hey millennial, can you loan me a dime?

Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Missing the PointAn Old Man’s GripesMoney Pit and Crying Poverty. Follow Dick on Twitter @QuinnsComments.

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Mik Barbasol
Mik Barbasol
2 years ago

Maybe we should all just claim to be illegal aliens and our taxpayer funded health care could be free of charge ?

Pete Tittl
Pete Tittl
2 years ago
Reply to  Mik Barbasol

That is nonsense.In California there’s a proposal for that, but it’s not going on anywhere else.

Mik Barbasol
Mik Barbasol
2 years ago
Reply to  Pete Tittl

Don’t be so naive…many of the blue states already provide “sanctuary city/state” status w/ free health care, education, etc. for illegal aliens…i.e. Illinois, California, Massachusetts, Colorado, New Mexico, Oregon, Vermont….and guess who is FORCED to pay for all these handouts ?

Francis Sam
Francis Sam
2 years ago

Hi there Dick,

First, I hear and agree with you. The current MediCare model is not sustainable.

However, given that the current model allows for person >65 years of age only, you’re looking at a pool of insured folks that is, more likely than not, going to result in greater outlfows than inflows. I doubt any insurance company would set up a model with that type of population. Or if they did, they definitely would be charging higher rates than MediCare currently does.

So we could either raise MediCare rates on this population (I highly doubt) or we could open it up to those who will pay into the system but aren’t likely to require a payout, a pool of subsidizers if you will (why take a loan when free money would do?).

For example, if I were a gym owner, I wouldn’t want the people who frequent it to sign up. They would cost me more in utilities, wages, and equipment (because they’d be using, sweating, and depreciating the things quicker).

I would want folks who sign up but never show up; terrible personal finance on their part, great income stream on mine.

BenefitJack
BenefitJack
2 years ago

The challenge here is the failure of our overseers to clearly confirm that the vast majority of Americans have not paid FICA-Med taxes sufficient to cover the cost of the Medicare benefits we have received/will receive.

That is, we have not earned nor paid for this entitlement. There is no “contract” or legal right to Medicare, it is an entitlement.

So long as Congress can keep spending the wealth and income of future generations (including those yet unborn) to buy votes today, we will never resolve Medicare’s funding challenge.

So, my solution is to remove the inter-generational wealth transfer, and highlight/confirm the intra-generational income and wealth transfers. Raise the taxes and premium payments of current retirees until they fund their own benefits, same for today’s workers, and all generations to come. And, to the extent that “social” security is the goal, where individuals in any generation can’t afford added taxes or premiums (however our overseers want to define that), call the added benefits what they are – welfare. Reduce the benefits actually paid from Social Security and Medicare to reflect actual payments into the system (including employer payments, adjusted for earnings), then provide added monies and coverage as social welfare.

With respect to Part B and Part D, take historical FICA and FICA-Med wages and estimate the amount of income taxes paid by individuals to support Part B and Part D in the past. So, for example, wages paid prior to 2003 (for Part D) and wages paid prior to 1966 (for Part B) didn’t include any amount for those benefits.

Stop lying to Americans who receive benefits in excess of their contributions/taxed. Ensure they recognize that they did not earn those benefits, but that they are receiving monies from other taxpayers. And, then, consider applying an asset test (a la Medicaid) – doesn’t seem right to provide welfare to those who have accumulated wealth.

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