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By KENNETH A. FISHER, MD
Medicare and Medicaid were passed in 1965 as an amendment to the Social Security Act after decades of political posturing. Unlike Social Security that pays a specific amount, both are open-ended benefits with the individual having no knowledge or concern about the amount being spent. Costs for these two programs have exploded far beyond initial expectations, require a huge bureaucracy and are unsustainable in the long term. Medicare costs were $702 billion in 2017 and projected to cost $1.26 trillion in 2026. It has a complicated funding and benefit scheme. Part A is funded by ever increasing taxes on earned and in some cases invested income. This funds in-patient hospital care, skilled nursing home (not long term) and some other smaller areas. Despite these increases in taxes, the part A fund, without further changes, is projected have a shortfall beginning in 2026. Part B funds physician and other outpatient services. Part C, Medicare Advantage, is a federally funded private insurance benefit of increasing popularity providing both part A and B benefits. Part D covers outpatient pharmacy needs. Seventy-five percent of parts B and D are funded from general tax revenues with the remainder by user fees.
The Medicare program is bedeviled by several realities, with the present funding mechanism putting an ever-increasing burden on the succeeding generation. This is ironic as an original argument for Medicare was to afford relief for those working. Changing demographics, fewer workers supporting more recipients, longer life spans consuming more care and ever-increasing expensive medical options were not considered in the original legislation. Today, the average Medicare recipient receives 2-3 times more care in cost than they contributed when working, explaining in large part the popularity of the program, but also the difficulty of applying it to the general population.
Medicaid, part of the 1965 legislation, is funded by about 50 percent from the federal government (general tax revenues), a greater percentage for poorer states, and about 50 percent from state coffers. The Affordable Care Act (2009) expanded Medicaid eligibility limits from 100 percent to 138 percent of U.S. poverty level and federally funds 90 percent for those individuals. When initiated, Medicaid covered about 2 percent of the population, which now has grown 10-fold to about 22 percent. Spending was $565.5 billion in 2016 and projected to be $957.5 billion in 2025, another unsustainable amount. Adding to this financial problem is that many studies have demonstrated that Medicaid, with its extremely low reimbursements in many states, does NOT improve the recipients' overall medical health. The states' share now exceeds their expenditure for primary and secondary education, thus consuming funds that could have better educated the next generation preparing them to function in our world-wide industrial economy and thus decreasing future Medicaid roles. Lowered federal and state payments causes hospitals to lose about 10 percent from Medicare and about 50 percent from Medicaid. Over-charging private insurance, resulting in increased premiums, compensates for these losses, which is a major factor in workers' wage stagnation.
Congress, after many centralized, bureaucratic attempts has proven incapable of addressing the impending Medicare/Medicaid fiscal disaster. However, there is a uniquely American solution that would be acceptable to the public: an option of individuality.
For Medicare, create an option of having premium support with yearly actuarially determined deposits into the individuals' health account. From this account, the patient would pay cash for routine needs and purchase nationally available catastrophic insurance for high priced items with the deductible equal to the yearly deposit. To remain financially aware, individuals would pay 1 percent of these higher-end costs from their health account. Federally funded reinsurance would be necessary for ultra-expensive occurrences. Along with this option would be the choice for those of working age to have their payroll deductions deposited into their individual retirement health account consisting of half U.S. bonds and half mutual funds to grow over time. Accumulation of funds would be available for care when older, eliminating the present burden on the following generation. This option would have to be phased in over decades to support present day Medicare. Individuals would demand knowledge of actual cash prices, the bureaucracy would be drastically curtailed, care would improve, and costs would dramatically decrease.
A similar individualistic option should be available for Medicaid recipients and all those without coverage. This is tailored after the successful Indiana Medicaid plan of 2007 to 2012 that provided better care at far less cost. A means-tested deposit by federal/state governments into the individuals' health account was provided. As with the Medicare individual account, cash payments would be for routine care and the purchase of a high deductible catastrophic plan with the deductible no greater than the yearly deposit.
In this way, all Americans would have access to the same high quality care by paying cash for most items thus eliminating the present problems for Medicaid recipients in securing care because of inadequate reimbursements. Via this mechanism all Americans would have the same access to good care at a cost this nation can afford. Treat all people as capable of being responsible and they will act responsibly; this was proven during the Indiana experiment.
Dr. Kenneth Fisher is a Nephrologist, author of, "Understanding Healthcare, A Historical Perspective", a member of the American College of Healthcare Trustees and an advisory board member of Practicing Physicians of America. Contact him at drkafisher@gmail.com
