Sunday, December 16, 2012

A Primer on Our Unaffordable Medicare Costs

All Americans need to become much more familiar with our nation's health care costs and why it's absolutely imperative that they are brought under control over time.

While nobody has the solution right now, that's no reason for us not to acquire an understanding of the problem. After we 'get it,' we'll be able to deal with it realistically and effectively.

Foreseeing the Issues in Medicare's Future is a good primer explaining the country's health care financial crisis:

"The projected growth of Medicare costs is the single biggest contributor to the country’s long-term budget deficits, many estimates show. No cohort of Americans, with the possible exception of the very affluent, pays enough in Medicare taxes and premiums to cover its eventual Medicare costs. . . .

What follows is a primer on Medicare costs.

Q. Is Medicare really a bigger long-term problem than Social Security or military spending?

A. Yes. Over the next 25 years, the Congressional Budget Office projects that Medicare spending will rise to 6.7 percent of the gross domestic product, from 3.7 percent this year. (Other federal health care spending — like Medicaid, the insurance program principally for low-income families — is projected to rise to 3.7 percent of the G.D.P. in 2037, from 1.7 percent this year.)

In total, health care spending’s percentage of the G.D.P. is expected to rise by five points. Social Security spending is projected to rise by only 1.2 percentage points, to 6.2 percent in 2037. All other federal spending is expected to shrink by two percentage points, to 9.6 percent. . . .

Q. Why is Medicare the big problem?

A. As much attention as the aging of society receives, the rise of medical costs is a bigger budgetary problem. The faster growth of Medicare costs, relative to Social Security costs, highlights this difference.

Social Security costs will indeed grow in coming years, adding to the government’s fiscal problems. But those costs will not grow nearly as rapidly as Medicare’s, because Medicare costs are a function of both the aging society and the cost of treating any one person. Social Security’s costs stem almost entirely from the number of elderly people.

Q. Don’t most Americans pay for their Medicare benefits, through payroll taxes over their working lives?

A. No, and it is not even close. Two married 66-year-olds with roughly average earnings over their lives will end up paying about $122,000 in dedicated Medicare taxes through the payroll tax, including the part their employers pay . . . . That married couple can expect to receive about three times as much — $387,000, adjusted for inflation — in benefits. The projected gap is even larger for younger people because of growing health care costs.

In short, the single biggest cause of the long-term deficit is that most people receive much more from Medicare than they give to it.

Q. Why are health costs growing so rapidly?

A. For a good reason and a bad one.

The good reason is that our medical system has made enormous progress in recent decades and can treat conditions that once would have killed people. Cancer treatment and cardiac care are two examples of areas with beneficial new treatments that are often not cheap. An American who turns 65 today can expect to live almost 20 more years on average, up from about 16 years in 1980.

The bad reason is that our health care system wastes large amounts of money. The United States spends roughly twice as much money per person on health care as many other rich countries, without getting vastly better results. Americans receive better care in some areas (some cancers) and worse in others (higher error rates). . . .

Q. What are the possible solutions?

A. For starters, we could pay more in taxes. Tax revenues are near a 60-year low as a share of the G.D.P. They will rise somewhat as the economy recovers and incomes increase, but not by nearly enough to pay for growing health care costs.

Covering the future costs of Medicare and Medicaid solely through higher taxes would involve sharp increases — much greater than anything being debated now. So most budget experts believe that changes to Medicare need to be part of the deficit solution.

Among the options are raising the eligibility age, which is now 65; reducing benefits for affluent families; introducing more competition; and paying for quality of care, rather than quantity.

Q. What are the upsides and downsides of each?

A. Let’s take the options one at a time:

The main arguments for raising the eligibility age are that Americans live longer than they used to and that the 2010 health care law makes it easier for people to get insurance if they do not receive it from an employer. The main counterargument is that the longevity increase has been smallest for low-income people, who are most likely to benefit from Medicare coverage.

Reducing benefits for high-income families has some bipartisan support, given the recent increases in income inequality. But some Democrats worry that it could eventually undermine Medicare’s popularity, making it more akin to a welfare program.

Many Republicans advocate for more competition in health care, noting that competition has reduced prices and raised the quality of service in many industries. It has an uneven record of doing so in health care, though, in part because insurers can often profit by denying care.

Paying for quality rather than quantity has support from many economists. But it is not always easy. Patients and doctors often want to proceed with high-cost care even when research has not shown it to be effective.

Q. Does Medicare need to be fixed before Jan. 1?

A. Obviously not. Many potential changes would need to be phased in and would not bring savings for years. Other policy changes, like tax increases, can have a quicker effect on the deficit.

On the other hand, fixing Medicare is never going to be easy. Every budget negotiation between Congress and the president is an opportunity for them to make progress on a fiscal problem that is growing every year."

Summing Up

Our problems associated with too much government spending in relation to benefits received for the broader U.S. society are an ever growing problem. Much of the wasted money can be attributed to the OPM based wasteful ways of the government knows best gang.

Over the years in medical care, we've made tremendous progress through the advancement of technology as applied to our health care practices and procedures.

Nevertheless, the advancement of technology isn't the answer to our health care spending issues. Personal poor health maintenance is one big cause of our problems with affordability.

In other words, since so many of us eat too much and exercise too little, that's not a problem better health care technology can address. But our personal habits are in fact very much a cause of our nation's exploding health care costs. Combined with easy access, poor personal health care habits make our U.S. health care costs second to none.

My own view is that technological progress should be able to drive down health care costs, all other things being equal. It's worked that way in lots of areas other than medical costs and will work in health care as well if given a chance to do so.

But put the OPM mentality in play, and allow the false impression that upon retirement we've paid up fully and are therefore "entitled" to all the health care benefits we'll receive from the current system, and the mess we've created for ourselves is easy to see. Of course, the pandering politicians haven't been anxious to spread the truth to American voters either.

But facts are facts, and it's time to face them.

It's definitely a long term issue, but there are available affordable and practical long term solutions if we're ready to dispense with all the political B.S. and confront the reality.

That's my take.

Thanks. Bob.

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