Instead of revamping it, Congress should address Medicare as is

Instead of revamping it, Congress should address Medicare as is

As Democratic presidential candidates disingenuously promote “Medicare for All” recent information suggests these actors time would be far better spent focusing on the welfare of current and future beneficiaries of "Medicare as it Is." On April 22, the Medicare Trustees released their 2019 report on the financial and actuarial status Medicare’s Hospital Insurance (“Part A) and the Supplementary Medical Insurance (“Part B” and “Part D”) Trust Funds. The picture isn’t pretty.

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Medicare continues to grow rapidly as a portion of GDP. Expenditures last year were $741 billion, an increase of 5.6 percent from the $702 billion in the program spent in 2017, easily outpacing GDP growth of 3 percent.

As a result, Medicare’s Hospital Insurance Trust Fund is slated for depletion in 2026. Without changes to the Program, Medicare won’t have enough money to pay inpatient hospital bills, hospice care, skilled nursing facilities and post-discharge home health care for its 60 million elderly and disabled beneficiaries. The Trustees issued a similar alert last year. Despite the urgency we barely hear a word about it.

Part B, which pays for physician services, outpatient hospital care and non-inpatient-related home health and Part D, which finances prescription drugs, are not at risk of insolvency, but only because their funding in the form of general revenues and premiums is tied to expected spending by law.

These components’ fiscal outlook is as alarming as that of Part A. The trustees expect cost growth of over 8.3 percent for Part B and 7.3 percent for Part D over the next five years. This will show up in higher beneficiary premiums and greater federal spending. Approximately 74 percent of the Supplementary Medical Insurance Trust is funded by general revenues, which must be paid for by tax increases or borrowing.

The dire situation has triggered a “Medicare funding warning,” mandating that the president propose legislation to address the problem within 15 days after submission of the fiscal year 2021 budget. By law Congress must expedite consideration of the president’s proposal.

Longer term, demographics in the form of population aging and the rising cost of care threaten Medicare’s viability. Medicare expenditures are expected to exceed non-interest revenue for all but 1 of the next 75 years, deepening Federal budgetary strains. This, despite greater numbers of people paying the ACA’s high-income Medicare taxes and increased revenues from income taxes on Social Security benefits, none of which is indexed for inflation.

The trustees project costs rising from 3.7 percent of GDP today to 6 percent in 2043 and 6.5 percent in 2093. But this scenario assumes steep inflation-adjusted provider payment rate cuts baked into current law take place as scheduled and GDP growth a full point higher than we’ve experienced over the past 10 years. The former assumption is politically dubious because it could jeopardize beneficiary access and care, while the latter may be unrealistically optimistic.

The sooner corrective measures are taken, the less dramatic and disruptive they will need to be. Based on the preceding long-term outlook, the payroll tax rate would need to be immediately raised from 2.90 percent to 3.81 percent for the entire 75-year period or expenditures would have to be reduced by 19 percent right away. These figures ignore the increasing off-books costs of Medigap policies for seniors in traditional Medicare which are certain to rise with Program costs.

Potential solutions include tinkering around Medicare’s edges by changing specific features of the current system while leaving the current structure intact or redesigning the program itself. The former could include moves like targeted payment cuts, increased beneficiary contributions, increased payroll taxes and are most feasible to address the present exigencies.

However, restructuring Medicare in a manner that empowers beneficiaries by giving them greater ownership over spending decisions, creates incentives to align spending with individuals’ preferences and infuses greater competition and transparency in the system would bring the greatest health care value to our seniors.

Roger D. Klein J.D. M.D., is a member of the Regulatory Transparency Project on health care. He is a former adviser to the FDA and HHS. Roger graduated from Yale Law School and completed his post-graduate medical training at Yale Medical School.Dr. Roger D. Klein is a member of the Regulatory Transparency Project on health care. He is a former adviser to the FDA and HHS. Dr. Klein graduated from Yale Law School and completed his post-graduate medical training at Yale Medical School.