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What's Really Wrong with Medicare? By: Jeffrey Miles
FrontPageMagazine.com | Thursday, June 19, 2003


President Bush and Congress seem intent on “reforming” Medicare to include prescription drugs.  Unfortunately, Mr. Bush abandoned his original plan and, instead, succumbed to the pressures of the Left, endorsing a uniform benefit for drugs in Medicare without respect to the plan chosen.  These changes will not fix a system as broken as modern Medicare. 

Let’s face some harsh realities; Medicare is nothing but a failed attempt to socialize medicine and will continue its downward spiral until real reform takes place.  What reform?  Changes that have worked in the private sector of health care could and should be applied to Medicare to fix some of its problems. We’ll attempt to address some of these changes below.  But it will also require changes that no elected official, or candidate for office, has the courage to suggest. That reform would apply “means testing” to Medicare.

Means testing is not a new concept.  The government applies this evaluation of “need” for government programs of many types: No unemployment insurance unless you are unemployed, no Social Security beyond what your pre-retirement earnings support, etc.   Medicare is something you get whether you are rich or poor, sick or healthy, as long as you are over 65.  One size fits all; come on down!

This, of course, means that whether you are a billionaire, or living modestly on Social Security alone, you get the same benefits, all for virtually no cost.  Why?  Medicare is not a “savings” plan that reserves your tax payments for future benefits.  Medicare is strictly a social welfare program, paid for by workers’ taxes today, for today’s program costs.  In other words, the costs of “free” medical care for today’s seniors, regardless their level of wealth, is being paid for by workers’ payroll taxes, which are particularly onerous on the lowest paid Americans. 

Just look at the historical costs of Medicare versus its projections:

• Original projections called for Part A (hospital costs) to be $9 billion by 1990 when, in fact, actual spending that year was $67 billion; 639% higher than expected.

• The payroll tax designed to pay for the program was not to exceed 1%, split evenly between employers and employees.  The plan allowed the tax could to 1.6% by 1987, but that would be the maximum limit.  Additionally, the maximum wage base for calculation of this tax was not to exceed $6,600 annually.  That base was gradually increased to $135,000 by 1993 but due to the river of red ink incurred by the program, the upper limit was eliminated shortly thereafter.  Even your pre-tax contributions to pension plans are assessed the Medicare payroll tax.

• Medicare spending currently represents 2.5 percent of the gross domestic product, expected to increase to 4.5 percent by 2030.  This represents 13 percent of the total federal budget and, left unchanged, will increase to 50 percent by 2075.

• Part B (physician and miscellaneous costs) premiums were expected to be $3 monthly for seniors, with a similar match from government.  Currently, those costs to seniors are $58.70 per month, nearly 2,000% higher than anticipated.  

Many other hidden taxes have been disingenuously charged to the American consumer to pay for this program.  Take for example the Medicare Secondary Payer rules.  A decade ago, Congress extracted more money from the private economy by imposing new rules on the coordination of benefits for Medicare beneficiaries. 

They deemed Medicare to be the “secondary payer” if the beneficiary works for a company of 20 or more employees.  This also applies to covered dependent spouses. It also strictly prohibits employers from dis-enrolling their Medicare beneficiaries from their group coverage, and paying for them to have individual coverage, which doesn’t have those onerous rules. Thus, the federal government shifts its bloated costs on the business community for indirect funding.

Employer plans currently cover 12 million of the 40 million Medicare beneficiaries and are the largest funding source of seniors’ drug coverage. That reality may soon change with the inclusion of prescription drug coverage in Medicare.

Seniors are expected to spend $1.77 trillion for drugs in the next decade.  While that number is large, a survey conducted by the Health and Human Services (HHS) indicated that only 2 percent of the seniors report not being able to obtain a prescription even once during the last year.  The share ranged from 8 percent among households with incomes under $10,000 to 1/10th of 1 percent among those with incomes above $50,000.  Does this constitute the prescription drug “crisis” we hear about from politicians of both major parties?

So what is the solution?  President Bush had it right when he proposed the inclusion of prescription coverage, tailored to the Medicare plan you selected.  He wanted to include an option to use preferred providers (PPO) where a beneficiary could still retain fee for service medicine, and an option to have a health maintenance organization (HMO) as your plan of choice. He also wanted to retain the current outdated fee for service structure.  The prescription plan would be more extensive in the more “managed” plans, but still provide choices. 

These strategies are the same used by business in the employment based system and enjoyed by federal workers.  Remember, when Medicare was established it mirrored the benefit structure commonly used in the private sector.  Over the years, that process was largely ignored, maintaining a plan that was now severely outdated by the marketplace. President Bush’s original proposal would have largely “modernized” Medicare; a goal originally suggested by then President Clinton and endorsed by a bipartisan congressional commission empowered to suggest streamlining the program. 

Now, the congressional demagogues, led by Sen. Tom Daschle have eviscerated that proposal, choosing instead to fan the flames of class warfare as a method to mobilize the Left against President Bush. 

Instead, we will now have a backbreaking cost associated with providing this prescription benefit to all seniors, regardless their ability to pay.  This with no means testing to charge beneficiaries a fair premium for their coverage, and virtually no medical plan choices. 

Remember, Medicare was originally established, according to testimony before the Senate Finance Committee by  then Health Education and Welfare Secretary Anthony Celebreezze, as a plan which would assure taxpayers that “the financing of this basic plan is based on very conservative cost estimates.”  It was only meant to be a small, self-sustaining program.  Now, it has been transformed into an instrument of certain political death for elected officials willing to discuss necessary reforms.  Something needs to be done before this well-intentioned program overtakes the entire federal budget.  

Jeffrey Miles is a Registered Health Underwriter and benefits consultant in Marina Del Rey, California. He is also President of the California Association of Health Underwriters and a regular speaker on health insurance issues. He can be reached by e-mail at jeff@milesorg.com.


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