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Is Medicare in a state of crisis?

According to the Medicare Trustees report Social Security Insurance fund will be depleted in 2016. The Medicare Hospital Insurance Fund will be depleted in the year 2026. According to the Trustees Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare. (Social Security 2014)

According to an article from Reuters Mark Miller upon exhaustion or depletion the funds available will only cover 75% of the expenses not a complete usage of funds. However this 75% coverage will be collected from payroll taxes and assets. It can be hard to imagine a fund that is diminished to support payments in full. According to dictionary.com a crisis is defined as a stage in a sequence of events at which the trend of all future events, especially for better or for worse, is determined; turning point. (Miller 2012)

When I think about a trust fund I think of it in two ways I think of trust funds as either a source of supplemental income or as a primary source of income. In the case of elderly people with no other form of income I think of Medicare as the sole provider of payment as such a depletion or partial depletion of a fund that pays out 75% of the coverage is a critical issue.

Are radical measures necessary to preserve the program?

There are ways that Medicare trust fund issues can be fixed by Increasing the social security tax, lifting the payroll tax cap, raising the retirement age, or reduce the beneficiaries by having a means test. (Brandon 2013)

There are an estimated 174 million persons in the United States with private health insurance 41.7 million with Medicare and 42.5 million people with Medicaid insurance according to the CMS. The total amount paid in 2012 for CMS was $993.7 Billion while out of pocket and private insurance paid out $1.2 Trillion. (CMS 2012) Radical Changes are needed due to the amount of coverage utilized. In the worst case scenario it can be easy to imagine a population of 41 million without healthcare. A majority of the population with no real ability to make an income or better yet more than half of the current Medicare enrollees are between the ages of 65 and 74, the older segments of the population are growing the individuals over the age of 85 account for a little above 10% of the population, but their use of the Medicare services and overall impact on the program are substantial. (Umas 2014)

How is Medicare funded now?

Medicare is funded by two trust funds, the Hospital Insurance Trust Fund. The Hospital Trust Fund is funded by payroll taxes paid by most employees, employers and people who are self-employed. Other sources include income taxes paid on Social Security benefits, interest earned on the trust fund investments, and Medicare Part A premiums from people who aren’t eligible for premium-free Part A. Because of how the Medicare Hospital Trust Fund is funded by payroll taxes it can be logical for the elderly to come to the conclusion that they have paid for their Medicare benefits versus being on a welfare system.

The Supplementary Medical Insurance Trust Fund is funded by funds from Congress, and by premiums from people enrolled in Medicare Part B (Medical Insurance) and Medicare prescription drug coverage (Part D). Some of the other sources of funds are interest earned on the trust fund investments. (CMS 2013)

Why do elderly people feel that Medicare is an insurance program and not a welfare program? Is this perception accurate?

Because Medicare is supported by paying into the system this is money that has been set aside versus money that is just given away. According to Merriam Webster welfare is defined as: a government program for poor or unemployed people that helps pay for their food, housing, medical costs, etc. Much in the same way that private insurance is paid for with premiums could be perceived as insurance however, through the payroll tax currently at 6.2% and caps makes Medicare cheaper than other health insurance premiums. When dealing with perceptions it depends on where the perspective comes from. If one has been paying about 6.2% of their payroll in a private investment fund with gaining interest one could expect to see significant returns, possibly more than enough to cover healthcare beyond the age of 65. (SSA 2014)

Should there be a Medicare program at all? Why should the government be involved in providing insurance to elderly people?

In 1963 Lyndon B. Johnson wanted to add adequate protection for the aged against the cost of health care. The problem was that health cost increase greatly in old age, when at the same time, income almost always declines. Prior to Medicare, only a little over one half of those aged 65 and over had some type of hospital insurance; few among the insured group had insurance covering any part of their surgical and out of hospital physicians’ cost. Also, there were numerous instances where private insurance companies were terminating health policy. Estimates put the first year enrollee numbers at 19 million.

In 1965 Medicare and Medicaid were enacted as Title XVIII and Title XIX of the Social Security Act, extending health coverage to almost all Americans aged 65 or older and providing health care services to low-income children deprived of parental support, their caretaker relatives, the elderly, the blind, and individuals with disabilities. Seniors were the population group most likely to be living in poverty; about half had insurance coverage. (CMS 2012)

Until 2003 President George W. Bush signed into law the Medicare Modernization Act in 2003. (SSA 2014) The Medicare Prescription and Modernization Act (MMA) made the most significant changes to Medicare since the program began. MMA creates a prescription drug discount card until 2006, allows for competition among healthcare plans to foster innovation and flexibility in coverage, covers new preventative benefits, and makes numerous other changes. In 2006, the new voluntary Part D outpatient prescription drug benefit will be available to beneficiaries from private drug plans as well as Medicare Advantage plans. Employers who provide retiree drug coverage comparable to Medicare’s will be eligible for a federal subsidy.

Does Medicare have detrimental effects on the market for healthcare or on the market for health insurance?

A 1992 study in the Journal of the American Medical Association examined hospitalizations in Massachusetts and Maryland. The study found that Medicaid and uninsured patients were statistically more likely than privately insured patients to be hospitalized for avoidable conditions such as pneumonia and diabetes. (Dayaratna 2012)

Today there are plenty of news articles highlighting the uninsured figures. Some of the research has estimates at 47 Million persons in the United States without insurance. Not having Medicare in place would add an additional 41 million to the uninsured numbers. (PBS 2008)

Are these economic effects, offset by the positive effects of the Medicare program for the elderly? What about the positive effects of caring for the elderly for society?

According to the Heritage Foundation article titled Studies Show: Medicaid Patients Have Worse Access and Outcomes than the Privately Insured

A 2007 study in Health Affairs examined access to specialty services for patients who receive primary care from community health centers.[14] The study found that Medicaid recipients have significantly more difficulty accessing specialty care than privately insured patients.

A 2012 study in Health Affairs examined physicians’ willingness to accept new patients. Using survey data from a nationally representative sample, the study found that nearly one-third of physicians nationwide will not accept new Medicaid patients. Doctors in smaller practices, as well as doctors in metropolitan areas, are among the least inclined to accept new Medicaid patients.[15] The authors’ results suggest that this reluctance may largely be a consequence of Medicaid’s poor payment rates to doctors. (Dayaratna 2012)

It can be easy to draw the conclusion that healthcare insurance versus not having health insurance results in a lower quality of health while having private health insurance is better than having our Medicaid or Medicare.

Are there any externalities here?
Some of the externalities or side effects from Medicare might be lower payment reimbursements, and lower quality of service. With a population of 41 million they have the ability to affect the market with the types of services they require. Based on the way that Medicare is funded I would think of this program as a positive benefit because they are helping a population by having the same population pay into the program usually before using the benefits.