Current Issues Regards to Medicare

Medicare is financed by a combination of payroll taxes, tax subsidies, and premium payments from Medicare beneficiaries. Medicare Part A, the hospitalization program, is financed by a 2.9 percent payroll tax that is put into a Hospitalization Trust Fund. The trust fund contains the money used to pay expenses for the elderly and disabled people. This fund is unable to borrow funds if it runs short of money, unlike other government programs. The Treasury is also not responsible for any shortages of cash in this fund. Medicare Part B is the program that pays doctors for their services. This program is financed by premiums from the elderly. By law the premiums collected can only represent 25 percent of the costs of the program. As for the remaining 75 percent of the cost this is paid out of the Treasury’s general fund.

Today, total spending for both parts of Medicare is $207 billion. However, the Congressional Budget Office (CBO) projects that by 2007, the total Medicare spending will reach $428 billion. The CBO also projects an even more rapid acceleration after that. The spending on Medicare is expected to reach $1.1 trillion by 2015 and $3.5 trillion by 2030. This is when the current generation X’ers are paying taxes in advanced middle age.

Part A of Medicare is projected to go broke by 2008. President Clinton and others have tried to come of with accounting gimmicks to help fund it, but nothing seems to work. In 1997 Congress and the Clinton Administration passed the Balanced Budget Act to move parts of Part A to Part B to reduce cost. For Part B, the financial situation is different. Part B spending is a combination of ever-rising premiums and subsidies from the general tax revenues. These subsidies are unlimited, so the Part B trust fund, unlike the Part A trust fund, cannot be exhausted. The spending just gets bigger. Since overall Medicare spending is rising faster than either the rest of the federal budget or the general economy, it will cut sharply into both. If there is no change in current law, Medicare spending will be from 12 to 19 percent of the federal budget outlays by 2015.

Medicare has had financial problems during its three decades of existence. Congress addressed these shortfalls through the budget. Congress has been using a series of makeshift arrangements, programmatic nips, and a combination of tax increases and cuts to doctors and hospitals to help degrease Medicare spending. As a result of doing this Congress has learned a political lesson; Senior citizens love the program. However, surveys show that people have little or no idea how much Medicare really costs.

Medicare is only going to see an increase of spending in the future do to the huge baby boom generation. There is an estimated 77 million, which will be ready to start retiring in 2011. The baby boomers projected demand for medical services will be unprecedented. This is because they are such a huge population and they did not have enough children to cover the cost of their future expenses. It will be hard to provide high-quality medical services for a rapidly aging population without breaking the financial back of the next generation.

Another major problem with Medicare is the idea that one system can benefit all people or the “One Size Fits All Model.” The one-size fits all healthcare delivery system run by the government has developed into an inefficient way for seniors to receive and doctors to deliver needed care. The senior population in America is the most diverse in the world. The diversity begins with age. While Medicare coverage begins at age 65, the fastest growing segment of the population is the over 80 segment.

The healthcare needs of a 65-year-old and 85-year-old differ dramatically. American seniors, however, differ not only by age but also race, ethnicity, culture, and geographic region. The current Medicare system attempts to cram all seniors into a centrally planned system. As our senior population becomes more diverse and medical care changes and advances, the more outdated and unfair to seniors the system becomes.

Because America has such a diverse population of seniors there is a need to diversify the Medicare system. Older seniors may need more prescription drug benefits and hospital benefits, where as people which are under 70-years-old may not need those types of benefits immediately. We also must take into consideration race and ethnicity. Certain ethnic groups have diseases that are specific to that group and Medicare must be able to provide benefits for them and not discriminate because it is not covered.

An example of this is a person who has mental health issues. Currently, when an elderly person goes to a doctor for treatment of a physical health problem, Medicare pays 80 percent of the bill, and the patient is responsible for the remaining 20 percent. However, if that same person sees a doctor or a mental health provider for a mental health problem, Medicare pays only 50 percent of the bill. Medicare also does not reimburse doctors for screening for mental illnesses. This is shortsighted and discriminatory. Mental illness among elderly people is common and most often under diagnosed. Therefore, the policy should be so that anyone who needs care for whatever disease they have should receive it.