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Friday, September 09, 2005

Medicare's Nero and Bush's Fiddle

This is the third part in a series on Medicare B. It was previously posted at Old Town Review Chronicles.



While President Bush zooms around on Air Force One, talking to pre-screened crowds about his plans for Social Security, blithely ignoring the reality that Americans hate his ideas, he is totally ignoring the real emergency in America’s Social Safety Net.

If you look at the latest report from the Medicare Trustees (www.ssa.gov/history/pdf/tr00summary.pdf) (sorry, I can't get it to work as a link). I’ll summarize for you: Medicare is in deep doo-doo. Let me hype some hysteria before I save the universe.

The DI (Disability Income) portion of the fund will begin paying out more than it takes in no later than the year – wait for it – 2007. The HI (Hospital Insurance) portion will last a full three years later and begin losing money in 2010. The worst case scenario is that both will be flat broke by 2012. However, they are supposed to last until 2023 and 2025 respectively.

To me, burning very expensive jet fuel in Air Force One to run around playing Chicken Little about Social Security while totally ignoring Medicare is tantamount to auditioning for the role of Nero. All we need is a fire and a fiddle.

The SMI (Supplemental Medical Insurance) portion – the part that pays for Medicare B – is expected never to run a deficit because the government exercised rare good judgment and passed a law that requires annual costs be automatically split between government and recipients in such a way that costs are just covered. However, by only covering those people who are both poor and most likely to have high medical bills – the “typical” Medicare recipient makes only $14,300 and has at least two chronic medical conditions – the cost of Medicare B will continue to rise. From around $66 last year, the monthly cost of buying Medicare B for beneficiaries is now $78.20.

At the lower cost, when combined with out-of-pocket expenses, it still represented as much as 23% of the average recipient’s total expenditures. If Medicare B continues to cover only the old and sick; it will continue to rise and eventually become too expensive for recipients to pay for. Already, studies estimate that only half of all eligible people actually enroll in Medicare B programs to help pay the costs of premiums. As the cost of Medicare B rises, healthy people opt out of the program, so that only the very worst remain covered. Currently, only 5% of all Medicare recipients account for 47% of Medicare B spending. 20% of all recipients account for 84% of spending. The more that healthy people that drop out the worse the program works for everyone.

The only way to reverse this trend is to use the principles of insurance. Rather than the inevitable cutting of benefits, raising of entry requirements, and/or raising of taxes, it is better – and more actuarially sound – to expand the program. If you open it, as it now exists, then the government will be bound to kick in 75% of monthly premiums. That will hardly begin to save money.

However, it can be saved by operating under good insurance principles and opening it to any American to buy into at full cost. That raises the price from $78 per month to $78 per week. That’s a lot of money. If the cost is split between employer and employee, then the total out-of-pocket is $39 per week. A rise in minimum wage of $1 per hour allows an employee to pay that without actually losing any money they already have. Granting a tax abatement to small businesses to cover that same level of expense makes it a wash to small employers.

This proposal gives millions of Americans access to health care. It protects Medicare B for older Americans, and possibly even makes it cheaper for them. It allows small businesses to build a benefits package that will compete with larger employers. A safety net that makes the market place more competitive. That should be something that both Conservatives and Liberals can get behind.

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