How to Save Medicare—And How Not To

"Entitlement Reform" is being promoted as one of the solutions to the "fiscal cliff," but the problems with Medicare are actually longer term and require increases in the eligibility age plus means testing--not cuts in benefits.

Last week’s issue of this newsletter examined the situation with Social Security and found that both Democrats and Republicans have a flawed understanding of this program.  The Social Security Trust Fund (old age and disability) has $2.709 Trillion in "assets," but these are just IOUs from the government to itself.  

The Social Security surpluses have all been spent on other programs, as the federal government has lived "high off the hog" on these funds for a long time.  Now that it is necessary to start paying interest back to the Trust Fund with cash, rather than more IOUs, some members of Congress are complaining about how terrible it is that Social Security is running a "deficit."

Seniors and their families should tell Congress:  Stop your complaining and pay back the money to Social Security your borrowed!

Nevertheless, there are legitimate long range actuarial problems with Social Security that should be corrected as soon as possible by:

1. Increasing the Social Security eligibility age to at least 70, maybe 73, or even 75. This should be done right away, not gradually.  The life expectancy is now 83 for men and 85 for women.  When the Social Security eligibility was originally set at 65, the life expectancy in the U.S. was only 62.

Of course, provisions must be made for persons whose health requires an earlier retirement.

2. Means testing Social Security so that very wealthy seniors would not receive benefits. Money is not available to send checks each month to those who don't need them.

Similar reforms are necessary for Medicare, but the actuarial problems are much more urgent.  Still, they really don't relate much to the current "fiscal cliff."

At the end of October 2012, the Medicare Trust Fund (hospital and supplemental) had "assets" of $292.74 Billion.  Like the Social Security Trust Fund, these are just meaningless IOUs. The federal government has spent all of the Medicare surpluses on other things and left seniors holding an "empty bag."

Because Congress has to pay this money back, some legislators are complaining about what a hardship this is on the budget.

Nonetheless, there are serious problems awaiting "down the road" a little.  The May 1, 2012 issue of this newsletter provided information on the Annual Report of the Medicare Trustees.  

The Trustees pulled no punches in explaining the problem:

The Hospital Insurance (HI) Trust Fund again fails the test of short-range financial adequacy, as projected assets are already below one year's projected expenditures and are expected to continue declining.  

The fund also continues to fail the long-range test of close actuarial balance. The Trustees project that the HI Trust Fund will pay out more in hospital benefits and other expenditures than it receives in income in all future years, as it has since 2008. The projected date of HI Trust Fund exhaustion is 2024…

And unfortunately, the problems are actually worse than that.  The figures used are based on the false premise that medical costs will be lower than they are likely to be.  As the Trustees admit:

The report notes that sustaining these payment reductions indefinitely will require unprecedented efficiency-enhancing innovations in health care payment and delivery systems that are by no means certain.

Translation:  Medicare will soon be in big trouble.  But the solutions are similar to those for Social Security:

1.  Increase the eligibility age to at least 70, maybe 73, or even 75.  This should be done soon--not gradually.

2.  Provide large deductibles for those seniors with extremely high incomes.  Even very wealthy retirees could eventually need Medicare.  But it is not unreasonable to ask them to use a portion of their vast resources before receiving Medicare benefits.

The Heritage Foundation issued a report, Six Bipartisan Entitlement Reforms to Solve the Real Fiscal Crisis, which contained similar recommendations.

The Hill reports that some Democrats are beginning to warm to the idea of means testing Medicare.

Senator Dick Durbin (D-IL), the Majority Whip, said, "I think that is reasonable and certainly consistent with the Democratic message that those who are better off in our country should be willing to pay a little more."

Senator Max Baucus (D-MT) (pictured), the Chairman of the Senate Finance Committee, called the idea "somewhat attractive."

Senator Claire McCaskill (D-MO) remarked, "Donald Trump may need medication, but he certainly doesn't need the government to pay for it."

And Congressman Emanuel Cleaver (D-MO), the Chairman of the Congressional Black Caucus, called means testing a good way to solve the problems facing Medicare without cutting benefits.

Even President Obama seemed to like the idea in July 2011.

"You can envision a situation where for somebody in my position, having to pay a little bit more on premiums or co-pays or things like that would be appropriate," he said.  However, he has not mentioned it since that time.

But the liberal AARP remains strongly opposed to any form of means testing.

Joyce Rogers, the Senior Vice President of the group, said, "Applying a means test for their earned benefits would erode the popular support that has sustained these programs for years and made them so effective in helping older households."

Someone should explain to the obtuse AARP that means testing--and increasing the eligibility age--are both essential to keeping Medicare financially viable for middle and lower income seniors.

Both of these reforms would insure that Medicare benefits are not cut.

Obamacare cut $716 Billion from Medicare to finance other aspects of the President's health care law.  Regrettably, the Republican-controlled House of Representatives passed a budget in the 112th Congress that kept all of the Obamacare cuts in Medicare.

In the campaigns, numerous Republicans--including Mitt Romney and Paul Ryan--criticized Obama for his cuts in Medicare.  However, noting that Ryan was the Chairman of the House Budget Committee, former President Bill Clinton said at the Democratic National Convention:

Now, when Congressman Ryan looked into that TV camera and attacked President Obama's Medicare savings as, quote, "the biggest, coldest power play," I didn't know whether to laugh or cry because that $716 billion is exactly to the dollar the same amount of Medicare savings that he has in his own budget!  You got to give one thing: It takes some brass to attack a guy for doing what you did.

Since returning from the campaign trail to the House, The Hill states that Paul Ryan is preparing a new budget that will once again embrace the $716 Billion Obama cuts in Medicare.

A recent poll by the National Journal found that an overwhelming 79% of the people did not want to cut Medicare benefits at all.  17% would be willing to cut benefits a little.  And only a tiny 3% said it would be OK to cut Medicare a lot.

The way to save Medicare is to increase the eligibility age and means test benefits--not to cut benefits.

The previous issue of What's Happening with Seniors Benefits: Democrats and Republicans BOTH Wrong on Social Security

The previous issue What's Happening with Conservatives and the Tea Party: GOP in Trouble With Voters?
 
Previous issues of both newsletters.

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