Fixing Medicare needs sacrifice from everybody

April 10, 2011|By Jay Hancock

Each time I write about reforming Medicare, the budget-busting health program for seniors, emails and blog comments follow.

"I paid for my Medicare benefits," is the basic message. "It's not an entitlement. It's insurance. I'm just getting out of the system what I put in."

Retirees and boomers close to retirement are alarmed that substantial changes loom for the program they or their spouses contributed to for decades. Many see the potential cuts or greater required contributions as betrayal.

But neither you nor anybody else in the program has paid anything close to what the benefits are worth. Saying you have a right to an unaltered Medicare is like saying you can buy $300 worth of food at Giant with a $100 bill.

Payroll taxes from employees and companies finance less than half of Medicare spending. To compensate, the government diverts more than $200 billion a year in general funds that could have been spent on teachers, highway repair and so forth.

The typical worker who turned 65 last year (and his employers) paid $55,000 in today's dollars into the system over his career. But thanks to rocketing health inflation he'll cost Medicare $161,000 in today's dollars by the time he dies, calculate economists Eugene Steuerle and Stephanie Rennane of the Urban Institute.

An insurance company in this position wishing to avoid bankruptcy would have raised premiums paid by the beneficiaries decades ago. Or cut their benefits. But Washington, ever prone to deliver something for nothing, has done neither.

The raw fact is that Medicare threatens the solvency of the United States. There is no disagreement about this among either Democrats or Republicans, if they are candid. Medicare's problems are much worse than those of Social Security.

Medicare spends half a trillion dollars a year in a total federal budget approaching $4 trillion. On the present course, Medicare could suck up more than one dollar of every seven in the economy by 2080 —$2 trillion a year in today's dollars, the nonpartisan Congressional Budget Office has projected.

"Welfare for oldsters" is the valid description for Medicare, but Steuerle sympathizes with those worried about change.

"We have this set of promises that have been built up that can't possibly be met," he says. "If you want to do anything [to fix Medicare] you've got to renege on past commitments. That's kind of hard for the public to deal with."

Wisconsin Republican Rep. Paul Ryan's Medicare reform plan was predictably panned by Democrats last week, and rightly so. Exempting everybody 55 and over from any change is a breathtaking act of pandering. Ryan reprised the Republican fairy tale that tax cuts solve everything.

For those under 55, he would replace Medicare with a subsidy to buy private health insurance, a setup likely to lead to the same gaps in coverage seen in the rest of the health system. (His plan has no chance of becoming law for now.)

But Ryan should get credit for one thing. He publicly acknowledges there is a Medicare problem, which is something Republicans, scared of angering seniors and eager to blame President Barack Obama for everything, have trouble doing.

For their part Democrats haven't exactly jumped to plug the Medicare hole, either, although Obamacare would plausibly lessen the rate of health-spending increases in coming decades.

What's the solution? Substantially higher taxes and limits on Medicare spending and procedures. The arithmetic allows no other conclusion.

Liberals argue that the problem is medical costs generally, not Medicare. Deliver care more efficiently and Medicare fixes itself, they say.

More wishful thinking. Providers won't deliver efficient care until spending limits force them to do it.

"If it's an open-ended budget, all the efficiency improvements in the world aren't going to get us there," says Steuerle. "Basically you've got to empower somebody to say 'no.'"

Nor can Medicare be saved solely by taxes on millionaires, as some of the left seem to believe. Last week economist Robert Reich, who was labor secretary under President Bill Clinton, argued for cranking top income tax rates back up to the 70 percent range, which is where they were in the 1950s. The move would generate $350 billion a year in revenue, he calculated on his blog.

But while that would cover the gap between Medicare spending and Medicare payroll taxes for now, it would leave little other new revenue for Obamacare, Social Security and everything else threatening the budget. And even that wouldn't cover Medicare's ballooning costs to cover retiring boomers.

Americans love their Medicare. But sooner later what they pay for it has to equal what they get.

jay.hancock@baltsun.com

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