Medicare may be the most sacred government program in the United States — even 76 percent of tea-party supporters oppose cuts to it, a McClatchy-Marist poll found in November. Given its central role in our fiscal challenges, it makes sense to examine why this program is so popular.
There are two key factors.
First, retired Americans receive high-quality care but have virtually no idea what their Medicare benefits cost. The George W. Bush administration required Medicare to begin providing such information, but it is presented in a way that makes it hard to understand and is read only by people who request it. (The Medicare website even cautions that the “files are large so printing them is not recommended.”) While not every retiree takes the time to study the cost, almost all rely on the benefits.
Second, every working American has Medicare taxes deducted from each paycheck and has been told that the money is paid into a trust fund for his or her future benefits. It’s not surprising that Americans feel proprietary about Medicare — they believe that they have spent their working lives paying for their future benefits.
But those Medicare taxes, and interest on the program’s small trust fund, cover just 38 percent of the annual cost of the program’s benefits. Premiums paid by beneficiaries cover an additional 12 percent, but fully half of the program’s $549 billion cost last year was funded by federal income taxes on working Americans.
Put another way, Medicare is a transfer of wealth from younger to older Americans.
As long as the baby boomers were working and paying taxes, their large numbers made this transfer to their parents and grandparents affordable. But the boomers began to retire last year. In its 2011 annual report on the nation’s financial position — compiled in conjunction with the Office of Management and Budget — the U.S. Treasury described the federal government’s finances as unsustainable. Treasury Secretary Timothy Geithner, in testimony to Congress this year, cited the ballooning cost of the transfer inherent in Medicare as a key driver.
The net present value of the transfer — the amount that would have to be set aside today to fund Medicare’s future intergenerational promises — has grown to at least $25 trillion, as calculated by the Government Accountability Office. This number is buried in footnotes of the annual Treasury-OMB report and is so large (almost twice the $14 trillion value of all public U.S. companies) that it defies comprehension. It’s not surprising that Americans can’t relate the alarming cost of this transfer to their own lives.
If that average worker had a wife who didn’t work, she would receive $188,000 worth of benefits, despite having paid nothing in. So the couple’s benefits are six times what was paid in, or a $298,000 transfer from younger generations.
A bill introduced in the House last year by Reps. Jim Cooper, D-Tenn., and Paul Ryan, R-Wis., would require the federal government to provide all adult Americans with an annual, personalized calculation of these numbers. As with the annual letter showing what we have each paid into and can expect to get out of Social Security (to save postage, these no longer are sent out but are made available online), this would alert each of us to the amount of benefits we are expecting from younger Americans.
Would Americans be as satisfied with Medicare if we were reminded each year about the hundreds of thousands of dollars that our retirement will cost our grandchildren?
The good news is that this problem is fixable. Other countries spend far less on health care and have better health outcomes. Reform of our health care system would dramatically reduce the cost of future Medicare benefits and reduce the tax burden on future generations. But Americans are angry with their elected leaders, and they lack the information critical to understanding the need for change.
Our toxic politics are not helped by our government’s dubious accounting standards and poor disclosure. We deserve better information and an honest discussion of our choices.
Bryan R. Lawrence is founder of Oakcliff Capital, a New York-based investment partnership.
Excellent article, although the solution is not to increase the amount we “pay in”, since there is no where for it to go to be “saved”. What we really need is a clear accounting of why our costs are so high, particularly the application of a “price is no object” approach to end of life care. Other nations have lower costs because they make reasonable choices about what procedures are necessary and reasonable.
And here, those reasonable choices are demonized as “death panels.”
Not by me. Socialized medicine in Europe is cheaper because they simply don’t offer all the bells and whistles. WE demand them, which is why are costs are so high.
Cost’s are high because of absurd and obscene profit margins. We need a national healthcare plan which covers ALL American citizens and is paid for through our taxes. I won’t argue the long comparison of why non-profit would cost less than the current for-profit method other than to say that if all have care we avoid high cost treatments for illness that has become worse and thus harder to treat. The other story not told here should be titled, “Tell Americans the real cost of NOT providing Medicare.”
Very well stated, Mr. Lawrence. I hope many people will read this important op-ed. We are headed over the cliff with this highly expensive entitlement program. It is past time we tighten eligibility, crack down on fraud, and reduce costs.
One question for all you readers: which party is most likely to do this?
Vote Republican!
You left out “privatizing” medicare and SS. That’s the right wing plan after they convince enough low information voters to vote against themselves.
You could call it a “transfer of wealth from young to old” if you were sufficiently greedy. You may also think of it as society taking care of older, less able-bodied people.
Makes alot of sense getting “advice” from a New York invewstment partnership person. Aren’t these the same people who put us into the position that we’re now in?
Besides this being written by a NY investor, the next clue is Paul Ryan, R-Wis., you don’t suppose Insurance lobbyists have anything to do with this kind of thinking?
We need to make the issue healthcare instead of health coverage, insurance and administration. These latter three do nothing to make me feel better!
paul ryan has great medical insurance. it’s not his problem.
Too many people get benefits that technically should not. But since there are loopholes and they exploit them, good for them. Wait until BO Unaffordable Healthcare Fiasco goes into full force. This Medicare will look like a lemonade stand.
While I agree that the average Medicare recipient has no idea how much their care cost, nor how much their contribution is; that is a problem across the board for all those individuals who receive medical services through a secondary payer or insurer.
If we look at the huge difference between the negotiated price for a service for an insured person versus an uninsured person…for the same service mind you…the inequity becomes huge. It is easy to see why people wait until conditions become very expensive or impossible to treat before accessing services.
I once had to go through a claim audit for my then husband’s hospital stay. We had very good insurance and were both working. The bill ran to over 40 pages for the primary stay! The company asked me to confirm whether he had indeed received each and every line item! While I was very devoted and spent a huge amount of time at his bedside, we had a 2 year old daughter and I wasn’t able to be with him every minute…there was simply no way I could confirm the validity of each charge and every aspect of treatment. Nor could he, as he was too ill to notice at various points.
I certainly was in no position to debate each and every treatment option with his attending physician. While we are very reasonable people and sought no particular frills or extraordinary measures, it can be very difficult to decide where to cut or where to decline when you are standing at the bedside of a person you love who is dying!
Similarly, they don’t come to you with a charge sheet and say, “We plan to do X, it will cost Y if we do this or you can take a chance and not do it…and maybe we’ll have to do Z which will then cost a bundle more…if you live to get to that point of course.”
Going to the hospital is not like ordering in a restaurant where you can decide what to get depending on how deep your wallet is, or quietly excuse yourself to leave if you find that the prices are out of your league.
The cost to save his life was certainly more than we could have afforded on our own and was roughly equal to the cost of the house we were living in in 1990 dollars. He was a young man and otherwise healthy so it would not be fair to say we were throwing good money after bad for someone who could expect no quality of life or recovery either. He did recover and has been working and highly productive in the decades since.
It is a fiction to believe that an ordinary person, no mater how cost conscious or frugal, or how carefully they save, can afford the cost of an illness or injury in today’s health market unassisted, be they young or old.
It is a fiction to believe that cutting fraud, which is not exactly a new idea and has actually been something every major insurer and agency has gone after, will make up the difference in health cost problems. It is not to say we shouldn’t keep after those who cheat, we should, but it isn’t the chief cause of the problem.
It is seriously fictional to believe that buying your own insurance is an option for most who are not insured with an employer, and even for those who are the costs of the insurance alone is more than most families can bear already.
It is delusional to believe that anyone who wants to pay for their insurance can just step out and buy an affordable policy! They can’t and the rules for exclusion are extreme.
It is also delusional to believe a private individual has any ability to prevail over an insurance company where a dispute is concerned. There are countless accounts by honest hardworking people who paid their premiums and who were denied their claims despite reasonable expectations on their part.
And so this author comes along and wants to make old people who paid into Medicare feel guilty that they aren’t able to foot the entire cost on their own? What does that solve?
None of us are able to pay these bills alone, save for the exceptionally wealthy. Its just out of reach. It isn’t just the Medicare recipients, its all of us in this boat. At the rate we are going we soon won’t be able to fob the blame off on the elderly, the chronically ill, or the uninsured.
We must go single payer. The notion of health care as a for profit activity violates the rules of a free market transaction, namely that both parties be equally free to accept or reject a transaction, that undue duress is not present, that a clear understanding of the terms of the transaction exist for both parties, and that both parties have a roughly equal ability to understand the potential benefits and risks of the transaction to them.
Those terms cannot be met when you lay bleeding on a stretcher at the side of a road. You may not be able to wait for the next ambulance to happen along in hopes they charge less to transport you, nor do you know the qualifications of the people caring for you, nor do they tell you what they are going to bill you at the scene. Nor are you in a position to refuse potentially as minutes may be the difference between life and death…assuming of course that you are conscious and able to make a rational choice at that point. You do not get to choose your destination hospital in most cases, nor do you even get to debate a service with a physician. Most treatment professionals can’t even tell you what something will cost if you ask they are focused on trying to get you well.
It is one of the few cases where you can incur a debt without consciously agreeing to consume a service…as they will do their best for you and bill you later until you are recovered sufficiently to start making some choices.
Conversely, especially for elderly patients, medical standards and paternalism in some cases may make it impossible for a patient to refuse a service they do not want…and yet they are still financially responsible. An elderly patient who declines a service, whether due to personal views or financial concerns, may be deemed incompetent if their doctor decides that this choice flies in the face of the patient’s well being. The service is then performed over the patient’s objections after a medical guardian is appointed…yet the financial responsibility still falls to the patient.
So if the author’s premise works, that we guilt the elderly into declining services based on their concerns for consuming out of proportion to their contributions, the most likely effect will be the loss of autonomy of the elder, the forcible administration of services, and a debt that no one wants to pay.
Healthcare is not a free market commodity. It cannot be treated as one. For profit medical companies are not responsible to their consciences, or good medical science…they are answerable to their stakeholders…who want a profit! That’s fine for tennis shoes or nearly any other commodity, but not for health services.
A huge way to reduce costs is to eliminate the administrative burden and profit from the equation. Find out what treatments work best and use them…not what bills most profitably…and base the standard of care there.
We also need to eliminate a sense for both doctor and patient that it is always appropriate to use every treatment under the sun. Patients don’t always want it. Doctors know they aren’t always helpful. There are times for the extraordinary, and there are times for acceptance…we need the judgement and grace to see the difference.