Medicare and Medicaid Have Obvious Structural Flaws Politicians Will Not Address
Unlike Social Security paying a specific amount, Medicare and Medicaid are open-ended with the individual removed from determining the amount being spent. Both have huge bureaucracies and consume an increasing share of federal and state budgets as growth in costs exceed growth in GDP (Ref.1). Medicare’s structure has ignored three major changes in our society that have caused its financial crisis: an increase in longevity with its attendant increase in medical care, exceptional increase in expensive medical advances causing increased per person costs, and decreasing number of workers contributing to the program as opposed to an increase in elderly consuming resources. The program’s trustees have projected that the Part A fund covering hospital costs will be exhausted by 2026 (Ref.2). In 2019 Medicare costs were $800.7 billion and projected to cost $1.075 trillion in 2023 (Ref.1).
Congress has tried many bureaucratic price fixed plans to control Medicare’s costs, including under payments for its services and shifting costs on to private insurance. Medicare is presently inadequately funded by a complex combination of payroll deductions, taxes, purchased insurance and fees. A possible alternative would be for individuals to have the option of accumulating the necessary funds while working to finance care when elderly. This could be accomplished by having their payroll deductions and dedicated taxes deposited into an individual retirement health account investing half in U.S. bonds and half in mutual funds growing over time. This would have to be phased in by decades of age to support present day Medicare. As part of this reform also create an option of having premium support for present day Medicare recipients with yearly actuarially determined deposits into the individuals’ health account minus bureaucracy costs. From this account when reaching 65 y/o, the patient would pay cash for routine needs and purchase nationally available catastrophic insurance for high priced items with the deductible less than the yearly deposit. To remain financially aware, individuals would pay one percent of these higher-end costs from their health account. Federally funded reinsurance would be necessary for ultra-expensive occurrences. Spending one’s own money would drastically change the entire industry.
Medicaid is funded by about 50 percent from the federal government (90% for those added by the Affordable Care Act) and 50 percent from state coffers. When initiated, Medicaid covered about 2 percent of the population, which now has grown 10-fold to about 22 percent while delivering poor quality care (Ref.3,4). The states’ share now exceeds their expenditure for primary and secondary education, consuming funds that could have better educated the next generation and thus decreasing the Medicaid roles (Ref.5). Medicaid total spending was $613.5 billion in 2019 and projected to be $765.5 billion in 2023 (Ref.1). A similar individualistic option as proposed for Medicare should be available for Medicaid recipients and all those without coverage, ensuring universal access. This is tailored after the successful Indiana Medicaid plan of 2007 to 2012 that provided better care at far less cost (Ref.6). A means-tested deposit by federal/state governments into the individuals’ health account was provided. As with the Medicare individual account, cash payments would be for routine care and the purchase of a high deductible catastrophic plan with the deductible less than the yearly deposit. All Americans would then have access to the same high-quality care by paying cash for most items.
These reforms would accomplish multiple goals. Medicare and Medicaid would be secure financially. Access to quality care would be universal. Costs would dramatically decline as individuals would be more careful spending their own money along with the elimination of middlemen and the bureaucracy.
1. Sean P. Keehan, Gigi A. Cuckler, John A. Poisal, et.al., National Health Expenditure Projections, 2019-2028: Expected Rebound In Prices Drives Rising Spending Growth, Health Affairs, March 24, 2020, available at: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2020.00094 (accessed September 20, 2021)
2. Editorial Board, The Entitlement State’s Bankruptcy Dates: Medicare is going broke, but Democrats want to add more benefits, Wall Street Journal, September 1, 2021, available at: https://www.wsj.com/articles/the-entitlement-states-bankruptcy-dates-social-security-medicare-trustees-report-11630531371 (Accessed Sept. 2, 2021)
3. Tara O’Neill Hayes, Medicaid: A Review of the program after 50 years, American Action Forum, July 13, 2005, available at: https://www.americanactionforum.org/insight/medicaid-a-review-of-the-program-after-50-years/(accessed September 24, 2021)
4. Brian Blase, The Next Medicaid Blowout: Democrats plan a federal program to cover childless adults. Insurers will win big, but health won’t, Wall Street Journal, September 21, 2021, https://www.wsj.com/articles/affordable-care-act-obamacare-medicaid-expansion-insurance-health-care-reconciliation-11632259356 (accessed September 22, 2021)
5. Walter Morrissey M.D., Coming to a State Near You: The Medicaid Crunch, KaufmanHall, available at: https://www.kaufmanhall.com/insights/article/coming-state-near-you-medicaid-crunch (accessed September 24, 2021)
6. Avik Roy, Obama Administration Denies Waiver for Indiana’s Popular Medicaid Program, Forbes, November 11, 2011, available at: https://www.forbes.com/sites/aroy/2011/11/11/obama-administration-denies-waiver-for-indianas-popular-medicaid-reform/#25f7043e3ff0 (accessed November 15, 2011)
Pat, As our federal government faces insolvency, just perhaps alternatives will be addressed. Ken
You’re and optimist, but I hope you’re right 🙂
BTW, good column Ken.
Medicare doesn’t work because it is an inappropriate activity for a government foundationally unsuited to provide daily needs. Medicare was history’s most successful vote bribe, making retirees permanent, enthusiastic wards of the state in one motion. It is a corrupt utterly immoral intergenerational theft and a Ponzi scheme that would make Bernie Madoff blush. OF COURSE it didn’t work as advertised, given it’s basis of unrestrained demand, which combined with (already) increasing longevity would never have been fiscally sound. Medicare was actuarily unsustained by 1972, merely 5 years after its inception. By accepting Medicare, our profession damned all of us to eventual single-payer care, whatever name it hides behind. The awful nature of this program is that it completely disincentivized the future shuffleboard set from providing for their own care, allowing them to hide behind the lie that ‘but I’ve paid into it my whole life!”, never mind that large and ridiculously predictable inflation eviscerates that explanation.
Medicaid – Medicare’s idiot stepbrother – was the famous “wedding cake” trick played by Ways & Means Chairman Wilbur Mills when he played (predictably) hapless Republicans trying to block Medicare passage by insisting that it wouldn’t cover the poor. It too is a grossly inappropriate function of the central government, and has also led to widespread health care price inflation, cost overruns, unrestrained demand, far, far too many babies created without care and easily born on the dole, and a worsening spiral into single-payer.
Criticize either of these programs and one is accused of wanting “to kill” either the elderly or the poor, never mind that both groups are stealing from their neighbors and cannibalizing the future for us all.
The solution is to:
1) Phase out Medicare entirely. Determine an age above which Medicare will be available; a middle age range where there will be income-based cost sharing (and those who’ve worked hard will get screwed, admittedly); and a younger age cutoff under which those will NEVER get Medicare and NEVER have to contribute to it. This will never happen because the Geezer Generation and near-retirees are too fearful and greedy to admit the damage they are doing, and will happily sacrifice the economy for their own perceived security.
2) Devolve Medicaid utterly and immediately to the states. The innovations of federalism should, and could bring accountability to a system wherein basic care could be provided more easily by states and municipalities if they were given the simple power to say “No.”
But politicians and people getting something for nothing will keep us on this track until vast systemic collapses put us all into Care-Aid where we all have the gold card. We are so screwed.
Benjamin, Wonder if that person would have chosen the gov. expensive option if the unused monies in his health account became part of his estate? Ken
I remember an instance in a wound care unit. I recommended an over the counter treatment that cost $4. The alternative was to order wound care supplies that cost $500. The kicker was the $3 would be out of pocket , but the $500 was OPM other people’s money, the government paying. I explained and the patient chose the government to spend $500.