October 2, 2014

CONCORD CAUTIONS THAT MEDICARE EXPANSION COULD LEAD TO GREATER PROGRAM COSTS

WASHINGTON -- The Concord Coalition today cautioned that a proposal by President Clinton to expand Medicare risks making the program even more unsustainable than it is today. However, Concord hopes the proposal will open a debate over how much Medicare should subsidize health coverage for people both below and above age 65 and at what age, if any, the existing subsidy should be universally available, regardless of income.

"Everyone agrees that Medicare is unaffordable in its present form, so it's difficult to understand why we should make it even more unsustainable through this type of expansion," said Concord Executive Director Martha Phillips. "We are very skeptical of the idea that Medicare can be expanded to cover those between the ages of 62 and 64 without substantially adding to the program's costs."

While the White House claims the cost of the Medicare expansion would be covered by a steep monthly premium for those who choose to begin coverage at ages younger than 65, the Coalition is doubtful that the premium could keep pace with rapid health care inflation over the long run.

The Coalition pointed to Medicare Part B as an example of how difficult it is for the President and Congress to raise beneficiary premiums to keep pace with inflation.

When Medicare was established in 1965, the Part B premium was set at a rate to cover 50 percent of program costs. But as health care inflation greatly outpaced the economy, the Part B premium did not keep pace. It now covers only 25 percent of program costs, with the remaining costs ($58 billion in FY 1987) paid for out of general government revenue.

During the 1995 budget debate, the Clinton Administration opposed a plan to keep Medicare Part B premiums at 31.5 percent of program costs. As a result, Part B premiums dropped from a monthly $46.10 to $42.50. Over the past two years, the premium reduction has cost the government $2.5 billion.

Concord also warned that setting the early buy-in premium high enough to cover the program's full costs would make it unaffordable for many middle and low-income beneficiaries, therefore raising the pressure on policy makers to subsidize the plan for those who couldn't afford it.

Phillips said that rather than proposing an immediate expansion of the fast-growing Medicare program, the Clinton Administration should be debating how to prepare it for the retirement of the massive Baby Boom generation.

"Medicare's short-term funding problems, while substantial, are dwarfed by its need to accommodate the massive Baby Boom generation," Phillips said. "Even without this proposed expansion, the burden the Medicare program will place on future taxpayers will be great."

She said the debate should be expanded to a careful examination of how much Medicare subsidy working age taxpayers ought to be required to provide to recipients at various ages and income levels.

The Concord Coalition has long advocated that Medicare's eligibility age should be raised to 67 in tandem with the scheduled increase in Social Security's eligibility age. Concord also favors means testing Medicare subsidies according to people's ability to finance some or nearly all of their health insurance.

 

Medicare Facts:

 

  • Medicare Part A annual spending already exceeds revenues from the payroll tax by about $26 billion and is projected to run even greater deficits in the future. Even when interest income and trust fund assets are added in, the program is projected to be insolvent by 2010 -- before the first Baby Boomer is eligible (even at age 62).

     

  • Medicare Part B is even worse shape. Insolvency is not an issue with Part B because it has an open pipeline to the U.S. Treasury. Any gap between expenditures and income is automatically filled with general revenues. In their April 1997 report the Public Trustees of the Medicare system warned, "Continued [Part B] growth at current rates will ultimately lead to costs which exceed the capacity of the funding sources -- Federal general revenues and beneficiary premiums -- to provide benefits."

     

  • The combined annual cash deficit for Medicare Parts A and B was approximately $80 billion in 1997.