Saving Medicare
It took great physical courage to save Private Ryan from the Nazis. Saving today’s Medicare from fiscal disaster will take only modest changes and a small amount of political courage.
Wanting instead to expand it into Medicare for All requires only a complete disregard for fiscal reality. But that’s a topic for another day.
Today’s Medicare is the second largest program in the federal budget, consuming $582 billion in 2018, or almost three percent of our Gross Domestic Product. As Baby Boomers retire, Medicare as it’s currently structured is projected to consume almost six percent of GDP in 30 years.
Like most federal entitlement programs, Medicare was sold in 1965 as a “pay as you go” program, funded with a combination of payroll taxes and beneficiary premiums. Like most federal programs, benefits have been expanded while the supporting taxes and premiums have not been increased to match. No surprise there.
Unless changes are made, this fiscal runaway freight train will make today’s trillion-dollar deficits look like the good old days.
The solution lies in taking a page from the bipartisan playbook that restructured Social Security in 1983: a combination of raising the eligibility age, a realistic reassessment of disability claims, and matching deductibles and co-pays to today’s healthcare costs.
To start, Medicare’s eligibility age of 65 is too low. Social Security’s threshold has been raised incrementally over the years to age 67, reflecting today’s more vigorous and active seniors. We need to do the same for Medicare.
At Medicare’s start in 1967, the average 65-year-old had a life expectancy of 14.8 years. Today, that figure is 19.3 years, about 30 percent higher. Yet no adjustment has been made in recognition of this fact.
Putting Medicare in lockstep with Social Security so that both begin at age 67 by 2027 would allow time for those approaching retirement to plan accordingly. Subsequent adjustments to the retirement age should reflect future projected life spans.
As a second step, we need to restrict Social Security Disability Insurance to the truly needy. SSDI automatically qualifies individuals for Medicare benefits.
Since 1972, the percentage of our working-age population receiving SSDI and Medicare disability benefits has doubled. While undoubtedly there are many who deserve our support, these benefits have become a gravy train for far too many others. The fact that disability claims leap up during economic downturns is prima facie evidence of abuse.
Cornell University’s Dr. Richard Burkhauser explained how The Netherlands dealt with its version of disability abuse. The Dutch reduced program inflow by shifting the first two years of worker disability benefits to their employers. In addition, employers pay an experience-rated disability tax based on the number of their workers who move onto the government program after two years.
Burkhauser noted, “These reforms provided incentives for employers, who are in the best position to offer accommodation and rehabilitation, to do so in lieu of moving workers with disabilities onto cash transfers.”
Finally, Medicare’s deductibles and co-pays have not been adjusted to reflect the actual costs of medical care.
By incrementally raising deductibles and co-pays over the next 20 years or so to the levels of commercial health insurance, we reap a double benefit. First, Medicare becomes increasingly sustainable. Second, beneficiaries will become more cost-sensitive in choosing health services.
Today, the 20 percent of Medicare beneficiaries with low incomes are excused from any costs. As a result, they consume 42 percent more services than others even after adjustments for their health. Lesson for Democrats: People always overuse free stuff.
Instead for low income beneficiaries, these deductible and co-pay cost increases could be offset with a medical equivalent of the earned income tax credit.
Raising taxes alone, as some propose, is not a cure for either Medicare or Social Security. Costs for both are increasing exponentially as a share of the country’s gross domestic product, much more quickly than tax receipts. And doubling income taxes to fund Medicare for All would be insanity.
Adjusting benefits to match the reality of today’s longer, healthier lives could save Medicare. Now we just need to find legislators with a modicum of courage and we’ll have a program we can live with.
The viewpoints expressed above are those of the author and do not necessarily reflect those of The Independent.
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