Issue: Medicare in Poor Financial Health

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Every time Betty Coyle of Syracuse needs to have surgery or has to pay doctor’s bill, she has something to rely upon.

“Medicare just really takes care of everything for me,” Coyle said.  “I haven’t had any problems with it.”

Coyle is one of the 45.3 million elderly or disabled people in the United States who rely upon Medicare to pay for much of their medical care.  In Onondaga County, that’s about 75,000 Medicare beneficiaries.

But Medicare is caught in a financial crunch.  Medicare is the nation’s popular and successful tax-supported health insurance program for those older than 65 and the disabled.  The recent economic downturn means fewer taxes to support the program. At the same time, the demands on Medicare are growing.  Its costs are driven up, say experts, by rising health-care expenses in general, the growing number of beneficiaries as baby boomers age, the addition of a prescription drug benefit and the inclusion of private insurers in the program.

Medicare works like this: Workers and employers each pay 1.45 percent of the worker’s income into the part of Medicare that pays for hospital stays.  The money for doctor’s bills and the drug benefit are paid out of the nation’s general taxes and out of premiums from beneficiaries.

Medicare is one of only two programs that every American is entitled to, regardless of income.  Social Security is the other entitlement program.

But now the government and tax payers are struggling with Medicare’s financial problems.

Consider these statistics on Medicare’s financial health:

• In the 2007 fiscal year, Medicare accounted for 14 percent of all federal spending, or about $432 billion.  The government spent more on only two other programs: national defense and Social Security.

• The Medicare trust fund that pays for hospital stays is predicted to run out slightly earlier than 2019, according to the most recent report of the Medicare Trustees at the Department of Health and Human Services.
• Health care costs in general are growing about 7 to 9 percent a year.

• From 2010 to 2030 the number of people on Medicare is expected to rise from 46 million to 78 million as the population continues to age.

• Now, about four workers pay taxes into Medicare for every beneficiary. But as the population ages, by 2030 the number is expected to drop to about two workers paying into Medicare for every beneficiary.

To cope with those problems, Medicare has to change its financing, said John Palmer, formerly one of Medicare’s two presidentially appointed trustees and former dean of Syracuse University’s Maxwell School. Or by 2019, predicted Palmer, “The program would not be able to provide full benefits under the law.”

In what promises to be a bitter congressional fight, the Obama administration is proposing to solve the Medicare money problem with a combination of increased taxes on upper-income Americans and cuts to Medicare spending.

That also means Medicare beneficiaries are likely to face some increased costs in the coming years, said Palmer.  But if the problems are ignored, said Palmer, they will only get worse.

The Pressures on Medicare

Some of the reasons for Medicare’s struggles, the Medicare Trustees say in their most recent report, include less money feeding into the system because of the nation’s economic struggles, the increased health care costs across the board, and an aging population that also lives longer.

The part of Medicare that pays for hospital stays — called Part A — is the most vulnerable to the current economic downturn.  Of Part A, 85 percent is funded by the payroll tax.    More unemployment caused by the imploding economy means fewer workers paying into Medicare.  Also, many baby boomers are retiring and no longer paying into the system.  With less money coming in, Medicare — especially the part that pays for hospital stays — is struggling to keep up with increased health care costs.
“Rising health care costs are the primary problem driving the economic burden on Medicare,” says Paul Precht, director of policy and communications at the Medicare Rights Center in Washington, D.C. It is a national non-profit consumer service organization.

In 1970, health care costs per person were about $356 a year, according to the federal government’s Center for Medicare and Medicaid Services.  Now, those costs have grown to more than $7,400 per person, according to the Center.  The cost increases come from rising prescription drug costs, the expense of developing new technology, higher insurance rates, general inflation and growing demand for health care for an aging population.

That growing demand for services is coming from the baby boomers, those born between 1946 and 1964.  As this population ages, the number of people suffering disabling aches, pains and illnesses is increasing every year, according to the Centers for Disease Control and Prevention.

Proposed Solutions

The Obama administration’s solutions include:

• Restrict the costs of private insurers in the Medicare program

Private insurers were allowed into Medicare under the George W. Bush Administration..  Now more than 10 million of the 46 million Medicare beneficiaries are signed up with private insurers, under Medicare Part C.  But studies show that the private insurers cost the government about 14 percent more per patient than traditional Medicare coverage.  That’s fueled Democratic opposition to having the private insurers in Medicare. The Obama administration says it hopes to implement a new competitive system in which the private insurers would bid against each other to participate in Medicare. The administration projects this competition could save up to $177 billion over 10 years.

• Increase Medicare premiums for the nation’s wealthiest seniors to help pay down the costs

That means asking 1.5 million of the nation’s wealthiest seniors to pay higher premiums, especially for their prescription drugs.  The Heritage Foundation, a conservative public policy research institute, says that Obama’s plan relies on “old-fashioned, populist, soak-the-rich tax hikes” and says there are other ways to raise the money.  For example, the Heritage Foundation says, a Medicare reform plan should be based on consumer choice and competition among private insurers that would help bid the costs down.

• Cut payments to hospitals that routinely readmit patients
A recent study published in the New England Journal of Medicine reported that one in five Medicare beneficiaries is readmitted to the hospital within one month of being discharged. That costs billions of dollars a year, say the researchers and the Obama administration.  The researchers’ findings suggest patients aren’t being told enough about how to take care of themselves and aren’t being scheduled for follow-up appointments.  Obama’s proposal would cut Medicare payments to hospitals with high readmission rates.
Moving Forward

All of these changes will help, says John Palmer, former Medicare trustee and Maxwell School professor.  But, many senior citizens need to come to grips with the idea that Medicare costs may be higher for them, said Palmer, and they may pay have to pay higher premiums.

“What has to happen in the long-run is some combination of increased sources of financing through tax increases and premium increases,” said Palmer.  “The solutions might entail some increased costs being face by Medicare patients over time.”

For Betty Coyle, a Medicare beneficiary in Syracuse, that’s an acceptable tradeoff to keep the government health care program alive.

“The government has to pay for it somehow,” Coyle said.  “There are a lot of people out there like me that need help.”

(Jason Tarr is a senior with triple majors in broadcast journalism, international relations, and Spanish.)

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