Medicare Problems Call For Premium Support Solution

Full disclosure - I have participated in a premium support Medicare supplemental healthcare plan for over twelve years & back such an arrangement on a national level to replace Medicare in its entirety.  I have seen firsthand the benefits I mention below that are far superior to any provided by our government run healthcare system for seniors & the disabled.  This post also forms my answer to what I had hoped would have been the fourth question, out of fourteen I presented, asked to Biden & Trump during the 2020 presidential debates - namely: Do you support a premium support system unindexed to inflation to replace traditional Medicare?  As you read on, just try to imagine either of these men really addressing this matter in a serious coherent manner.

This matter is important to people.  The September 2020 post that asked the original fourteen questions was the most read post on RTE last week - a year & a half later.  Accordingly, I moved this Premium Support-Medicare post up to provide my answer to one of the fourteen questions.

In brief - the problem is that if healthcare expenses keep growing @ their current rate our standard of living will be significantly reduced.  Specifically, Medicare spending is currently growing 2 percentage points faster than the GDP rate (i.e., the GDP rate + an additional 2%) so that Medicare constantly absorbs more & more of the economy's resources thereby leaving private enterprise or individuals less money for other consumption, production, savings, & investment, meaning a reduced standard of living.  See graph below that shows the change in consumer price index for medical care versus all items starting in 1960 - Medicare started in the mid 1960s.

The problem starts because people erroneously feel that they are entitled to Social Security & Medicare benefits just because they had money withheld from their paychecks when they were working ( e.g., - "I've been paying for it all my working life") or because they are now paying premiums, deductibles, & coinsurance in the case of Medicare.  Exacerbating the situation are internet pieces taking offense @ the word "entitlement" to describe Social Security or Medicare & the belief that employers pay an equal share with their employees of the payroll taxes for both of these programs.

The reality is that 43% of the proceeds for Medicare Parts A, B, & D come from general revenue from the Treasury Department.  Over 70% of the proceeds for Parts B & D come from general revenue. Ninety-five percent of the proceeds for Part A come from payroll taxes & taxes on Social Security benefits - & Part A is failing.  See graphic below.

The reality is that the majority of the costs of Medicare are camouflaged so that seniors do not know the real cost of the entire program or their level of direct financial participation.  Seniors only see that they pay $170 per month for Medicare Part B, & knowing this is a bargain too good to be true love the entire Medicare program.  But this is the mindset a presidential candidate worth voting for needs to change.

Just like Social Security, Medicare has financial problems too.  For instance the Hospital Insurance Trust Fund is scheduled to be depleted by 2024, two years earlier - because of the pandemic - than had been expected on the graph below, resulting in a benefit reduction of 12% to 16%.  See graph below from the 2020 Annual Report Of The Boards Of Trustees Of The Federal Hospital Insurance & Federal Supplementary Medical Insurance Trust Funds.

Medicare Part A, that covers hospital care services, is primarily paid for by the payroll tax equally imposed (1.45% each) on working Americans & their employers, meaning that employees pay half the payroll tax directly through withholding & the other half through their productivity that allows the employer to send their share to the federal government.  Employers actually pay nothing.

Medicare Part B covers physician & non physician medical services & is financially supported by a monthly premium, paid by beneficiaries of the program, that covers about 27% of the program's costs.  But nearly three quarters of the Part B program is subsidized by general tax revenues from the Treasury - this is why Medicare seems so reasonable even when counting the annual deductible & the 20% copays meaning Medicare Part B only covers 80% of doctors' charges.  Supplemental insurance from private insurers is needed to cover the other 20% - only the government could provide a healthcare insurance program that needs a private insurer to cover what it does not.

Medicare Part C, also known as Medicare Advantage (MA), is available to virtually any one who pays the monthly Part B premium.  MA is administered by private insurance companies that have been approved by Medicare.  Such plans may include dental, vision, & hearing & also cover prescription drugs.  Many plans are Preferred Provider Organizations (PPO) or Health Maintenance Organizations (HMO) which can limit the selection of doctors so be careful if you go for this option.  MA also gets funding from the Hospital Insurance Trust Fund & the Supplemental Medical Insurance Trust Fund so as these funds wind down Medicare Part C comes into more jeopardy - just like the entire Medicare program.

Medicare Part D is financed through monthly premiums - 16% of which are paid by the recipient & nearly three quarters of which is paid by revenue from the Treasury to a sub account of the Supplemental Medical Insurance Trust Fund meaning that nearly three quarters of the Medicare prescription drug costs are a public subsidy of the program.

Medical costs have increased faster than the general cost of living for decades & the following graphic from the aforementioned trustee annual report shows the increasing cost of the Medicare program.  The subsidies from the increased taxes euphemistically shown as general revenue transfers on the graphic below are bad enough.  But add in the increased payroll taxes, the increased taxes on Social Security (shown as OASDI on the graphic), the increased premiums, the increased state transfers & drug fees, & interest on the deficit of the program & you can see how this projection of expenditures shown on the below graphic will weaken the economy by causing slower growth as money that could be used for productivity increases that raise living standards is used for the Medicare government healthcare program.

The above is background describing the problems with Medicare that I had hoped would have been presented during the 2020 presidential campaign debates for the American people to think about, specifically when the question was asked to Biden & Trump - "It has been shown that a premium support system, unindexed to inflation designed for people younger than 55 years old, will bend the Medicare cost curve down, softening the 12% reductions in hospital benefits projected for 2024 (two years earlier than projections done before the pandemic).  In addition the cost of Parts B & D are over 70% funded by general revenue & growing too fast to be sustained.  Do you support a premium support system unindexed to inflation to replace traditional Medicare?"

It is hard to imagine either Biden or Trump answering this question seriously, but like all of the 14 questions on the list I presented Americans cannot return to  individual liberty & prosperity until they are all answered & addressed - because the slide away from living the free market libertarian answers to these 14 questions is what has undermined the American way of life that has deepened our submersion into socialism under the spell of Karl Marx.

The premium support solution to the Medicare problem: the Medicare program would be kept as is for people 55 & over or those on disability.  But starting with people younger than 55 they would be weaned off Medicare by the government offering a premium support that would pay the cost of a private healthcare policy to cover their medical needs.  This premium support would not be indexed to inflation so that people like my eight year old nephew or his younger sister would not be counting on Medicare @ all long before they turn 65 - as each year goes by the nominal dollar demogrant will buy less & less insurance or medical treatment so younger people will start to rely on it less & less. In this way Medicare, & its costs & taxes, would eventually fade away & people would once again provide for their own needs - healthcare in this case. 

The above graph shows four scenarios with only one curve bending down (i.e., reducing the burden on the American people) - the bottom curve labeled "Ryan Plan - Price Indexing."  The plan I am advocating not only bends down sooner than this bottom curve but actually solves the problem in our lifetimes.  For years many forward thinking private companies (e.g., IBM, ConocoPhillips, Delta Airlines, & Coca Cola) have provided their retirees with annual lump sums, unadjusted for inflation, to be used to cover healthcare needs - including purchasing adequate medical insurance (Medicare currently + supplementary insurance).  This incentivizes retirees to make decisions, using a fixed amount of money each year, about their own healthcare that will be in their own best interest while not burdening their fellow man.  I have personally seen this work.

In summary, the annual fixed amount of premium support decreases in purchasing power each year as inflation increases the cost of healthcare so that recipients can see what is happening & wean themselves off of government provided healthcare before such a system fails leaving many elderly & disabled people in desperate straits - both physically & financially. 

An added bonus:  As the mindset changes away from government provided healthcare for the elderly & disabled, younger Americans will start to realize that what they think of as healthcare insurance is really not insurance but rather prepaid healthcare arrangements where policyholders seek approval for medical services they have already paid for in advance with their premiums & then encounter deductibles, copays & the like.  They will come to realize they have been brainwashed for decades to accept a far off & impersonal insurance company calling the shots for their healthcare & that a better idea is for them to pay for much of their routine care, like teeth cleaning, themselves.  Buying a real insurance policy with a deductible & premiums they agree with & can afford, in conjunction with paying for routine care themselves, provides better control of younger Americans' own healthcare to boot.

Premium support, replacing the federal government's Medicare healthcare system, is a real plus for individual liberty & the return to excellence that America so desperately needs. 

Reference Post:  The Solution To America’s Healthcare Problems