Medicare Insolvency Is Only a Matter of Time
More government and more bureaucracy will not solve the nation’s healthcare problems.
As the silver tsunami of retiring American seniors is arriving, we’re reading news that Medicare, the government-run health insurance program currently covering 62 million people over 65, is awash in red ink. To say nothing of constitutional questions, the rising costs of care, the increasing demand for this care, and the diminishing ratio of workers to beneficiaries in the system are just a few of the warnings that a storm is coming for this government program.
The 255-page Medicare Trust Fund Annual Report was published on April 22, 2020. This report makes it clear that Medicare funds covering hospital care will be insolvent in just five years, and the insurance that covers doctor’s visits and medicines will have increases in taxes and premiums to cover the projected 8.2% rise in cost for Part B and 7.3% for Part D.
Dr. David Shulkin served as undersecretary for health at the Department of Veterans Affairs under President Barack Obama and as VA secretary for a year under President Donald Trump. In July 2020, following his own policy and actuarial analysis, Dr. Shulkin wrote that, due to COVID’s dramatic impact to payroll taxes, expenditures could exceed available revenue in Medicare as early as 2022 or 2023. Medicare has been in financial trouble for years because only about 40% of Medicare expenses are covered from tax revenue from the federal budget’s general fund. In the 2020 Trust Fund Report, it was documented that expenditures for Medicare Part A alone exceeded funding available from 2008 until 2016, when reimbursement changes kicked in from ObamaCare. Yet for almost two decades, policy papers and warnings about this have been ignored. Without reforms, the government will have to either raise taxes and premiums to cover the rising costs or reduce the covered care, or perhaps both.
Heritage Foundation senior fellow Robert Moffit, PhD, recently wrote, “Insolvency means that Medicare wouldn’t be able to fully reimburse hospitals, nursing homes, and home health agencies for promised benefits. In 2026, Medicare payments would be immediately cut by 10%, and the payment cuts would continue each year thereafter.”
And Sally Pipes, CEO and senior fellow at the Pacific Research Institute, wrote on Feb. 24, 2021, “Medicare is going bankrupt.” Her serious warning highlighted the procrastination: “The program’s hospital insurance trust fund ran a nearly $6 billion deficit in 2019. Pre-pandemic, it was on track to become insolvent — meaning there wouldn’t be any money in the fund — by 2026.”
That’s right — the year before COVID, Medicare ran a $6 billion deficit just based on hospital care for the elderly.
Going forward, Moffit, Pipes, and others predict tax increases and cuts in care. That’s called rationing when it’s severe.
In 1960 in the U.S., per-person spending on healthcare annually was a mere $146, but in 2018 that cost per person had skyrocketed to $11,172. With the expansion of contracted healthcare coverage, prices are most often hidden and only known after care is delivered. If you can’t see prices in advance, you can’t shop to minimize your out-of-pocket costs, not to mention the lack of competition. Large insurance plans and big systems complain that if they publish prices, there will be price fixing, but in every single other area of commerce — food, gasoline, cellphones, clothing, cars, etc. — prices are published in advance, and consumers select their good or service based on price, budget, and value. Competition works.
In healthcare we have a third-party payment system promising to provide big discounts, but that’s helping to hide prices by adding layers of administrative costs and protecting a system where costs will not come down unless there are government mandates and regulation. The healthcare plan determines the care you receive, and payment is based on hidden contract prices. The result is paying higher premiums and greater out-of-pocket costs.
Why is healthcare insurance so different from any other type of insurance? By definition, insurance is a contract by which an entity receives financial protection or reimbursement from loss and protection from risk. In practice, however, health insurance companies dictate drugs, place of care, and procedures. Alarmingly, insurance plans including Medicare determine patient care.
Besides being able to see prices in advance and having robust health savings accounts, innovative solutions outside of insurance can be used, such as direct medical contracting for a menu of services and association health plans that empower businesses and nonprofits to join together to buy insurance coverage for members.
More government and more bureaucracy are not the answers to rising healthcare costs and access issues, and that’s true even of a massive government program like Medicare.
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