I opened my mail recently and there it was…my brand new red, white and blue Medicare card.
I’ve known for some time that my 65th birthday was approaching, but this made it official. I have crossed a magic threshold and am now joining the approximately 36 million seniors in the United States who participate in the second most successful program ever devised by the federal government (Social Security is the first).
First, a few thoughts on turning 65, and then let’s discuss a much more serious matter -- the future financial viability of Medicare.
It used to be that turning 65 meant you were old. That’s not the case anymore. Better healthcare and better nutrition have combined to produce a generation of vibrant people 65 an older, many of whom are still very much engaged in the world around them.
Our new Speaker of the House Nancy Pelosi turns 67 next year. Sen. John McCain will be 72 when he runs for president in 2008. Barbra Streisand turns 65 in January and is still going strong on the concert tour.
Many of my own contemporaries and friends have chosen to remain professionally active well past their 65th birthdays even though they could retire at any time. They feel they still have something to contribute to society and aren’t ready to play golf every day or just sit around.
Others are compelled to keep working because of their financial situation.
We are a better country because of the experience and competence that older workers bring to the challenges facing us as a nation.
However, virtually everyone 65 and older, regardless of their current state of health, knows that they could be financially devastated by a serious illness or injury at any time were it not for the existence of Medicare.
Even worse, they know that they could become a financial burden to their children if Medicare didn’t exist.
All of us now take Medicare for granted, yet it only came into being 41 years ago (it was passed by Congress in 1965 during the presidency of Lyndon Johnson). We can’t even imagine a world without this program even though it didn’t exist for almost the entire first two centuries of our country’s history.
The program is very simple…. it pays virtually all the cost of the average hospital stay and 80 percent of doctor’s fees for enrollees.
Additionally, there is a new prescription drug program under Medicare that covers some, though not all, of the cost of drugs (the program is optional and not everyone signs up).
Private supplemental insurance policies are available to pick up the hospital and physicians charges not covered by Medicare. Most nursing home coverage is not covered by Medicare, but another government program, Medicaid, covers nursing home costs for the poor and private nursing home insurance is available.
The financing of Medicare is very straightforward. Everyone who works is subject to Medicare withholding (currently 1.45 percent of wages), which goes into the Medicare Part A trust fund. This is matched by the employer and is used to pay for the hospital portion of Medicare.
Additionally, Medicare participants are charged a monthly premium ($93.50 a month in 2007 for participants earning less than $80,000), which helps defray 25 percent of the cost of the doctor’s portion of Medicare (Part B).
The remaining 75 percent of program costs not covered by the monthly premium is paid out of general tax revenues (generated largely by individual and corporate income taxes). Participants in the prescription drug program (Part D) are charged an additional monthly premium, which can vary depending on the plan chosen (average premium the first year was about $32 a month).
The program cost is further subsidized from general tax revenues.
The problem facing Medicare is that current projections indicate that the Medicare Part A trust fund will be out of money by 2020 and may need an infusion of general tax revenue after that time if other structural changes are not made in the program.
Moreover, the amount that needs to be taken out of general tax revenues to subsidize the cost of Medicare Part B and Part D is growing at a rapid rate each year. The cost of Medicare Part A for fiscal year 2006 was more than $200 billion and the total cost of all portions of Medicare for fiscal year 2006 was in excess of $400 billion.
There are several basic approaches to reduce the Medicare Part A trust fund shortfall and the substantial drain on general tax revenues of Medicare Part B and Part D. All of them are unattractive to one degree or another.
The first one is to increase taxes (that is, increase the 1.45 percent withheld from individual wages each pay period). Raising taxes is never popular. Unlike Social Security withholding (which is capped at a certain wage each year), Medicare withholding is taken from every dollar of earned income, so you can’t increase revenues for Part A just by going after the wealthy.
Starting next year, however, Medicare Part B participants with incomes in excess of $80,000 a year will pay higher monthly premiums than everyone else.
The second approach involves cutting benefits. This would mean higher annual deductibles for hospitalization and possible reductions in the number of hospital days a year that Medicare covers without additional charges (currently 60 days).
This could also mean imposing a co-pay on the first 60 Part A hospital days covered (like the 20 percent co-payment for physician payments under Part B). There could also be other benefit reductions under Part B.
Any of these approaches would lead to substantial out of pocket costs for Medicare beneficiaries and would drive up the premiums for private supplemental policies. Severe cost cutting measures could be imposed on participating hospitals by further reducing daily Medicare reimbursement figures. This could cause hospitals to increase charges for everyone else (“cost shifting”) to make up their losses.
The next approach is equally unattractive. This includes diverting general revenue tax dollars into the Part A hospital trust fund without attempting to reduce the amount of general tax revenues used to underwrite Parts B and D.
Stated simply, this means there will be less general revenue dollars available for other programs run by the federal government (like education and law enforcement) or that the federal government would have to increase income taxes on everyone to fully fund Medicare or that it would simply let the deficit increase even more.
An additional solution could involve raising the minimum age required to participate in Medicare.
Currently, Medicare eligibility begins on a person’s 65th birthday. Some years ago, Congress raised the Social Security eligibility age to 67 (this is being phased in over a number of years starting in 2003). It made no comparable change in Medicare eligibility. Seniors can still draw early Social Security retirement (reduced benefits) at age 62 but there is no comparable early Medicare eligibility with reduced benefits.
However, ignoring the problem and waiting for the train wreck to occur is not a responsible approach. When Congress made solvency changes in Social Security in the early 1980’s, it provided that some of the changes would take effect immediately and others would not even start phasing in for a period of years.
The beauty of this approach was that not all of the pain was felt at the same time. Delaying action now means that whatever approach eventually is adopted will be even more painful at the time.
Let’s hope Congress gets its head out of the sand on Medicare sooner rather than later.
Martin Frost served in Congress from 1979 to 2005, representing a diverse district in the Dallas-Ft. Worth area. He served two terms as chairman of the House Democratic Caucus, the third-ranking leadership position for House Democrats, and two terms as chairman of the Democratic Congressional Campaign Committee. Frost serves as a regular contributor to FOX News Channel and is a partner at the law firm of Polsinelli, Shalton, Welte and Suelthaus. He holds a Bachelor of Journalism degree from the University of Missouri and a law degree from the Georgetown Law Center.