What Medicare debate is about

Sun Journal

September 20, 1995

Republicans in Congress are about to unveil the details of their plans to revamp Medicare, the government health insurance system that covers virtually all Americans over 65. Republicans say their plan, which would trim spending by $270 billion over seven years, is necessary to save Medicare from bankruptcy and give elderly Americans more health-care choices. Democrats counter that the GOP is using Medicare reform to make seniors pick up the tab for a proposed $245 billion tax cut.

But even though the formal debate has yet to begin, some of the most important questions can be already be answered, as John B. O'Donnell of The Sun's national staff explains below:

Is Medicare really going broke?

Not exactly. The Medicare trustees predict that the balance of the trust fund which covers hospitalization expenses will be depleted in 2002.

The trust fund, though, is simply an accounting device. Even if the fund technically is emptied, the government will still be able to pay Medicare bills. The trust fund would still have income and bills would be paid, though more slowly. These payments for hospitalization are known as Part A of Medicare.

Is Medicare the same as Medicaid?

They are different programs. Medicare is available to virtually every person over 65, regardless of income or assets. Medicaid is a federal-state health program for the poor. For the elderly poor, Medicaid pays Medicare premiums, co-payments and deductibles. It also covers long-term nursing home care and pays about one-half the nursing home expenses in the country.

So back to Medicare: How does the Medicare trust fund work?

Medicare taxes -- now 1.45 percent of salary -- are deducted from the paychecks of American workers to pay for Medicare Part A. Employers pay into the fund an additional 1.45 percent of salary for each worker. For someone making $30,000 a year, the Medicare tax amounts to $870, with half coming from the worker and half from the employer. Last year, the trust fund had $109.5 billion in income -- $95.2 billion of it from payroll taxes.

In years when the trust fund's income exceeds expenses, the leftover money is used to pay general government expenses and Uncle Sam writes an IOU to the fund for that money. Those IOUs constitute the trust fund balance. When income isn't sufficient to cover expenses, the trustees dip into the balance, cashing IOUs. The government sells bonds to investors to raise the money and uses those borrowed funds to pay the bills. Those borrowings add to the federal deficit.

Beginning next year, according to the latest trustees' report, expenses will begin to exceed income and the IOUs will have to be cashed. The current $136 billion balance is projected to be used up by 2002. But even then the fund will still have income -- $154.9 billion in 2002, including $145.4 billion from the payroll tax. So there would be money to pay bills.

OK, that's Part A. What else is there?

Part B covers physicians and some other services. Medicare recipients, income taxes and government borrowing finance it. The premium paid by recipients is $46.10 a month and covers 31.5 percent of costs.

Does Medicare pay all costs for covered services?

No. There are deductibles and requirements for patients to share various costs. For seriously ill people, the out-of-pocket expenses can be quite high.

How do Medicare recipients pay these extra costs?

Most have a supplemental insurance policy, known as medigap insurance, bought from a private insurer. Medigap insurance often costs $1,000 or more each year. Even with these policies, some medical bills have to be paid by the elderly themselves.

Are the Republicans "cutting" Medicare?

It depends on what you mean by a cut. Under the Republican plan, the average amount Medicare spends on each patient will rise between now and 2002 -- but not by as much if no changes were made in the law. So Democrats claim the Republican plan to pare the growth of Medicare expenses amounts to a cut.

Will the Republican plan "save" Medicare?

Only until 2014. That's when the bulk of the postwar baby boom generation will begin to retire, placing a further strain on Medicare as the ratio of workers to retirees drops dramatically. Republicans want a commission appointed to propose further reforms to keep Medicare solvent after 2014.

How would the Republicans hold down the cost of Medicare?

By increasing the Part B premium paid by Medicare recipients, reducing payments to doctors and hospitals and getting more Medicare recipients to change the way they receive health care.

How much would premiums go up?

From $46.10 per month this year to about $90 to $93 per month in 2002, say Republicans. That is roughly $7 to $10 per month more than if the Medicare program were left as it is. Democrats say the real figure will be higher under the GOP plan -- at least $21 per month more in 2002.

Is that true for everyone?

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