Heads up. Medicare administrators released their Annual Report last week, buried under other “significant” news from the Department of Health and Human Services, including the announcement of a new Office of Environmental Justice. Apparently the administration is more interested in advancing his awakened ideology than respond to the real and immediate warnings outlined in Medicare’s report.
Richly detailed with charts and graphs, the report describes the troubled state of the $839 billion Medicare program.
For starters, the Medicare hospital insurance program, which you pay for with a 2.9% payroll tax, will soon run tens of billions of dollars in deficits and face insolvency in just six years. (Last year, administrators said the inpatient program would run out in 2026, rather than 2028. That’s about the only good news in this year’s report.)
When insolvency hits, it means Medicare won’t have the money to pay all of your Medicare benefits. When that happens, now scheduled for 2028, Medicare benefit payments will be reduced by 10%. Without a remedy for the shortfall, tens of billions in trust fund shortfalls will quickly accumulate, Medicare benefit cuts will gradually intensify, and beneficiaries’ access to hospital services could be severely compromised.
The assets of the hospital insurance trust fund are barely 40% spending. The administrators recommend that the asset be equal to, at a minimum, 100% of hospital insurance expenses in a given year. For a permanent solution to the Medicare trust fund problem, administrators say it would take an immediate 2.9% payroll tax hike at 3.60% or an immediate reduction in benefits by 15%. The most likely Congressional remedies will likely be a combination of tax increases and cuts in benefit payments, phased in over time.
With this two-year reprieve, there is time, but no time to lose. The longer Congress delays acting, the more painful those tax increases or benefit cuts become.
Medicare’s hospitalization deficit is only part of the Medicare problem: the explosive level of federal spending, which will more than double over the next 10 years from $839 billion to over $1.8 trillion. That’s about $5,500 per person in the country.
The fastest growing expense is the supplementary medical insurance program that pays for medical services and drugs. Beneficiary premiums fund only about 25% of these costs, with the remainder being funded directly by taxpayers in the form of general revenue.
In 2019, the Supplemental Medical Insurance program consumed 17% of all federal income and business taxes. In 2030, it will consume 21.5% and the entire Medicare program will still be running tens of billions of dollars in deficits.
The obligations accrued by Medicare over the next 75 years amount to $52.6 trillion. That’s about $160,000 per person in the country. Combined with growing annual deficits and a huge national debt, the current and future burdens on taxpayers are enormous.
Millennials won’t know what hit them.
In 2003, Congress feared that Medicare’s growing reliance on general revenue, rather than dedicated revenue, would worsen the country’s overall fiscal situation. That’s why he decreed a requirement for Medicare administrators to issue a “funding warning” whenever general revenue exceeds 45% of total spending within a given time frame, and then to require the President and Congress take corrective action.
This year is the fifth year in a row that administrators have issued a Medicare funding warning, and like previous years, the White House and Congress are poised to turn a blind eye to those warnings.
Neither the President nor Congress can continue to ignore Medicare’s growing financial challenges without worsening conditions both for the tens of millions of seniors who depend on the program and for the hundreds of millions of Americans who fund it through the through income and wage taxes.
The administrators warn:
The financial projections in this report indicate a need for substantial changes to address Medicare’s financial challenges. The earlier the solutions are adopted, the more flexible and gradual they can be. The early introduction of reforms increases the time that affected individuals and organizations, including health care providers, beneficiaries and taxpayers, have to adjust their expectations and behavior. Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address these challenges.
Note that the admins are asking for “substantial” changes to the program, not simple tweaks. Serious reform is needed.
The goal of Medicare reform should not only control costs, but also ensure better value for health care dollars. Only a fully competitive market, guided by patient choice, can achieve this goal.
The main funding change is a Medicare-defined universal contribution (“premium support”), where patients can direct payment to their personal choice among various competing plans, as they do today in the popular and successful benefits program federal employee health care and Medicare Advantage programs.
Such reform would stimulate innovation in service design and delivery and improve the quality of care. This is one of the key achievements of Medicare Advantage, a system of competing private plans that provides an alternative to traditional health insurance.
Congress should mandate an updated version of traditional Medicare to compete, on a level playing field, with Medicare Advantage plans and other new and innovative private plans, including those sponsored by associations and employers.
Such a competitive market should be open to health plan options that allow beneficiaries to take full advantage of medical savings accounts or health savings accounts, as well as direct primary care programs.
In short, with such reform, Medicare patients would enjoy even greater choice and directly control the flow of health care dollars in a transparent environment of provider pricing and performance.
Comprehensive Medicare reform is a huge legislative task, Congress and the White House should take this seriously and start laying the groundwork.
This piece originally appeared in The daily signal