Medicare is officially over the hill as well as way over budget.
Fifty years ago this week, President Lyndon Johnson signed Medicare, the program that provides health insurance for seniors, into law. While most conservative seniors might not like to admit it, Medicare is socialized medicine. It is a single-payer program for people over 65, and because it is government-run, it suffers from the same problems as other government health regimes: red ink, price controls, and limited choices for both patients and doctors.
As health experts Merrill Matthews and Grace-Marie Turner point out, Medicare was initially expected to cost $9 billion annually by 1990. As is common with government programs, these initial cost projections were woefully inaccurate. The actual annual cost of the program in 1990 was $67 billion, and last year (2014), the U.S. spent more than $600 billion on Medicare alone.
Some people might shrug their shoulders at these numbers. They consider Medicare an earned benefit because everyone pays taxes while working to become entitled to Medicare during retirement.
It would be one thing if the government simply took our Medicare money, held it for us, and dished it back out to us during retirement so we could all buy health insurance. And indeed, many people think this is how Medicare works! But really our Medicare taxes are just like any other tax, and benefits during retirement are distributed according to need, not according to how much someone paid in. Therefore, the average senior is getting about $3 of benefits for every $1 he paid in.
As a result of this mismatch in revenues and benefits, Medicare’s 75-year unfunded obligations range between $28 trillion and $35 trillion.
Despite financial troubles, Medicare enjoys great popularity today, especially among seniors who are reaping the benefits. Some call the program, along with Social Security, the “third rail of politics,” because no one wants to talk about reforming or changing it. Instead, it seems the two major political parties are, for the most part, committing to maintaining the status quo (which is headed toward bankruptcy).
The latest politician to buck the trend (and get punished for it) was House Budget Chairman Paul Ryan who, after proposing reforms to Medicare, was depicted pushing a wheelchair-bound grandmother off a cliff in a political ad. Of course, Rep. Ryan’s proposal would not have affected how the Medicare program works for people over age 55… but that inconvenient truth wasn’t mentioned in any of the attacks on his plan.
Rep. Ryan was trying to do the responsible thing by suggesting reforms to Medicare that would infuse market forces into the program. Like some other reformers, Ryan supports transitioning Medicare to a “premium-support” model that would give healthcare dollars back to seniors in the form of a voucher that they could then use to buy a private insurance plan of their choosing.
Not only would this give seniors more choice and control over their healthcare dollars, but it would save tremendous amounts of money, as plans would have to compete to get the business of seniors.
Today there are about 54 million Americans covered by Medicare. While current beneficiaries would most likely be grandfathered out of any reforms, this figure shows the scale of Medicare’s market share. Imagine if those consumers returned to the private market: That’s a lot of business for insurers to compete for and could profoundly impact our health insurance system for the better.
Maybe in 50 more years, policymakers will see the merit of this approach. But by then it may already be too late. As Romina Boccia at the Heritage Foundation has pointed out, “Medicare’s trustees project the Part A trust fund will be depleted in 2030 at which point benefits could be paid only to the extent revenue comes in, meaning either benefit cuts, tax increases or some combination of both.”
Even in the face of political attacks, real leaders are bold enough to propose solutions and act responsibly to honor all stakeholders. We all, as taxpayers and as potential future Medicare patients, have a stake in solving this problem. We should cheer those few brave voices who recognize that – even after 50 years – change is necessary. And we should support their efforts.