Facing Facts Alert 5

Number 5, August 6, 1995

Facing Facts Alert 5

The Truth about Entitlements and the Budget
A Fax Alert from The Concord Coalition
FAX ALERT (Number 5, August 6, 1995)


According to opponents, Congress' proposed Medicare cuts are
"unprecedented" and would "devastate" Medicare's mostly poor and
near-poor beneficiaries. Correction: Most beneficiaries are not poor or
near-poor.  Nor are the cuts proposed by Congress unprecedented: The
President's 1993 Health Security Act specified Medicare cuts that were
essentially as large.

Who Gets Medicare Let's start with incomes.  A misleading factoid is
surfacing everywhereufrom congressional hearings to President Clinton's
weekly radio address: No less than 75 percent (some say 83 percent) of
Medicare outlays go to beneficiaries with incomes below $25,000; only 5
percent (some say 3 percent) go to those with incomes over $50,000.

All of these numbers greatly understate the incomes of beneficiaries.
The more skewed numbers, mentioned in parentheses, refer to utilization
of health-care services.  But measuring the income of Medicare
beneficiaries by looking at utilization is like measuring the home
equity of people with fire insurance by looking at those whose houses
have burned down. A better measure is the income of everyone insured by
Medicare, not the income of those who happen to be reimbursed.  The
less skewed numbers look at all beneficiaries, but they too mislead by
using self-reported surveys which are known to under-report asset and
benefit income.

Curiously, no one cites CBO's data on the income of Medicare
beneficiaries. According to these numbers, which measure the insurance
value of Medicare benefits and correct for the under-reporting problem,
over half of Medicare benefits went to households with incomes over
$20,000 in 1990; one-third  went to households with incomes over
$30,000; and 15 percent went to households with incomes over
$50,000uthree-to-five times the share cited by opponents of Medicare

Even these numbers understate beneficiary incomes.  They are for 1990;
since then, median elderly household income is up nearly 10 percent.
The measure of income used is a restricted one that doesn't even
include the value of the Medicare benefit itself.  Incomes are
calculated per household, and so don't reflect the fact that
beneficiary families are small (1.6 members on average, much smaller
than the average for nonbeneficiary families).  And incomes are
calculated on a before-tax basis, which means they don't reflect the
fact that most beneficiary income is tax-advantaged.  Yes, Medicare
beneficiaries spend more out-of-pocket on health than younger
households.  But then again, younger households have higher
out-of-pocket expenses for everything from home mortgages to

A Bipartisan Consensus The public understands that to get a handle on
out- of-control Medicare spending we have to begin by scaling-back
payments to affluent households whom safety nets like Medicare were
never designed to target.  According to a recent Concord poll,
three-quarters of the electorate favors means-testing Medicare

When not playing partisan politics, both parties also understand that
we must control costs. Today it may be the Republicans who are "messing
with Medicare" and the Democrats who are playing the senior card.  But
not long ago, it was the other way around.

For those who have forgotten about the large Medicare cuts proposed in
the administration's 1993 Health Security Act, here are the numbers.
The Health Security Act called for $183 billion in programmatic
Medicare cuts from 1996 to 2000umore than the $137 billion in savings
Congress is now proposing.  To be sure, these cuts were to be offset by
a new prescription drug benefit.  But even if you factor in this
benefit, that still leaves $111 billion in net savings.  Moreover, you
have to consider cost-shifting. Being "comprehensive," the President's
plan was predicated on eliminating any current cost-shifts to private
payersuwhich effectively meant that (totally aside from the plan's
proposed dollar savings) Medicare would have had to cut back sizably on
real services provided to stay within any given dollar budget.

Medicare is patently unsustainable in its current form.  To preserve
it, we must reform it.  And to do that sensibly, we'll  have to get the
numbers straight.


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