Medicare, the nation's largest insurance program, has long been one of America's most cherished entitlements. Enacted in 1965, as amendments to the Social Security Act (Title 18 became Medicare and Title 19 Medicaid), its mission was to provide affordable health care to all elderly citizens. Unfortunately is in grave need of need of reform. Under the Balanced Budget Act of 1997, the Part A trust fund will be empty in 10 years. Currently Medicare comprises about 12% of the federal budget, but without changes it will constitute between 28% and 38%. Its coverage is inadequate, currently covering only 53% of the health costs of beneficiaries. To compound these problems, 77 million baby boomers will be eligible for Medicare starting around 2010. The number of people enrolled will double in approximately 30 years, and health care costs are ever accelerating higher and higher. This paper will outline the structure and financing of the federal Medicare program, examine the three most recent reform proposals as presented at the March 1999 Congressionally mandated National Bipartisan Commission on the Future of Medicare, and explore other reform possibilities.
HCFA (The Health Care Financing Administration) administers Medicare insurance, which currently covers to 39 million Americans. There are three main eligibility qualifying requirements: 1) minimum 65 years old, 2) disability as defined by Americans with Disabilities Act, or 3) permanent kidney failure resulting from end stage renal disease. Qualified individuals must complete an application at their local Social Security Office to enroll. Medicare is organized into two parts. Compulsory Part A provides coverage of inpatient hospital services, skilled nursing facilities, home health services, and hospice care. It is financed entirely by the Medicare Trust Fund created in government pooling of a 2.7% payroll tax (employer and employee each 1.45% of employee's salary.) Voluntary Part B helps pay the cost of physician services, outpatient hospital services, medical equipment and supplies, and other health services and supplies. 25% of it is funded by a patient premium (monthly premium in 1998 was $43.80,) and 75% by general Social Security revenues. In addition, there is a 20% patient co-pay for each visit. While not formally a part of the federal program, most recipients also purchase supplemental insurance coverage designed to pay for the large holes in Medicare coverage (such as prescription drugs), supplemental private insurance designed to cover the holes in Medicare coverage (such as prescription drugs, and many medical services. There are 10 standard policies, each offering a different combination of benefits. It is financed entirely by patient co-insurance and deductibles.
At the March 1999 Congressionally mandated National Bipartisan Commission on the Future of Medicare, the three most promising reform proposals were presented. Senator John Breaux and Representative Bill Thomas put forth a Premium Support model for Medicare reform. Their proposal would implement a combined trust fund to further and better manage the balance of payroll taxes, general revenue, and beneficiary premiums that fund Medicare, combine Part A and Part B to simplify implementation and financing, and raise the eligibility age to 67 (to parallel Social Security), and allow peoplebetween 65 and 67 to buy into the program early. All beneficiaries would equally pay about 12% (a percentage guaranteed for all participants) of the costs in premiums for the standard benefit package. Instead of shifting funds from the surplus or other health expenditures to the general trust fund, it would reevaluate the way Medicare is financed to ensure the entire program's solvency. Their proposal would also give the elderly access to prescription drug coverage, be budget neutral between 2000 and 2004, and be continually monitored to ensure Medicare will not breakdown in the future. It is designed to encourage innovation and market competition to keep premiums low, in a similar way to the popular Federal Employees Health Benefits Program that insures 9 million Federal employees, their retirees, and their dependents. The elderly would share in the savings from reduced Medicare growth rates in the form of lower premiums. The Medicare Commission estimates that under Premium Support, beneficiary premiums in 2013 would be 17% to 24% lower than under current law. A Medicare board would provide information to beneficiaries and negotiate with HMO plans. Beneficiaries would be able to enroll in either a private health insurance plan or a traditional government-run fee-for-service plan, each offering similar standard benefit packages. All private participating plans would be required to provide high end options to include prescription drug coverage. Premium Support would extend drug coverage to low income beneficiaries. To preserve the Graduate Medical Education program, Direct Medical Education payments would be carved out of Medicare via a mandatory entitlement or multi-year discretionary appropriation.
Senator Jay Rockefeller and Representatives John D. Dingell and Jim McDermott presented a dissenting proposal to the Breaux-Thomas view. They maintained that although Medicare has some serious problems, it does not require a radical change in the program, but only expansion to cover basic needs and a guarantee of solvency by further funding. As a result, their proposal is the most incrementalist of any. They quickly point out that Premium Support simply shifts costs from the government to the beneficiaries, and subjects Medicare to Congressional deadlock as plans must be chosen and approved every year. They feel that most importantly, Medicare must guarantee financial solvency until at least 2020. If 15% of the projected surplus were used for Medicare, Part A would remain solvent until 2020.
They feel that privatization is not the answer. The experience of other countries suggests that a social insurance program would be very effective at solving the Medicare crisis, but the commission still proposes to privatize. Medicare costs have inflated less per capita than private health insurance, so there is not much evidence that a shift to all private insurance would spend less. For the Breaux-Thomas Premium Support model to save money, seniors would need to join HMOs that pay providers less and offer fewer benefits. Rockefeller-Dingell-McDermott also suggest an early buy in program with anti-fraud protections to insure those who are near retirement and uninsured.
They feel that comprehensive drug coverage for all enrollees is imperative. Premium Support does not guarantee prescription drug coverage for all and that all participating plans must continue traditional fee-for-service. It is available only through purchasing a high end supplemental plan or being in the lowest income bracket. Thiswould unduly burden those who do not qualify as poor enough to receive free drug coverage, but cannot afford an expensive high end plan. They felt strongly that Breaux-Thomas's proposal would slowly erode the idea of a guaranteed adequate benefit package. As plans compete, benefits can decrease. Premium Support does not address the need for long-term care coverage.
The Rockefeller-Dingell-McDermott proposal is based on a firm belief that Medicare should not increase the total number of uninsured. Premium Support would gradually increase the number of anywhere from 200,000 to 1.75 million by raising Medicare's eligibility age from 65 to 67.
They also feel that Breaux-Thomas's Premium Support model did not give near enough attention to Graduate Medical Education. It is not effective to simply shunt costs elsewhere, as Graduate Medical Education and Indirect Medical Education are to areas of potential reform and savings.
Wholly divergent to the two above discussed reform proposals was the Alternative Reform Proposal: Protect, Improve, and Expand Medicare presented at the National Bipartisan Commission on the Future of Medicare on behalf of the Medicare Commission for All and the National Commission to Protect, Improve, and Expand Medicare in contrast to the two Commission proposals. This alternative proposal hopes to reform Medicare in three stages.
Stage One is to protect Medicare fiscally to establishing an improved budget, in response to the dire need to reduce the rate of growth of health expenditures. A GlobalHealth Budge is proposed that would ask providers to cut costs rather than force beneficiaries to bear the burden of rising costs.
Stage Two is to improved Medicare by expanding coverage. It is more efficient to offer adequate Medicare coverage under one plan than to force people into complex and costly secondary plans. They comment that if the US per capita expenditure on pharmaceuticals were lowered to the median OECD level, $22 billion per year could be saved. This alternative proposal also includes comprehensive Medicare coverage of long-term care, which currently costs $125 billion a year and will never be adequately covered in the private sector insurance.
Stage Three, the most radical, proposes to expand Medicare to cover the entire population, arguing that concentrating the whole population into one insurance program is the best way to control health costs. Universal insurance facilitates the absorption of the elderly population into social programs. The notion of expanding Medicare has become a mainstream idea: Clinton instructed the Bipartisan Commission to allow people to get into Medicare at 62. Currently, 43 million Americans are uninsured. They propose a Universal Medicare Program to cover 90% of the costs of health care ($1,116 billion of the $1,240 billion total expenditure) by shifting money from existing health care avenues into Medicare. Among the services excluded would be cosmetic surgery, adult dental care and others. $583 billion would be shifted from existing tax revenues for health care (i.e. for Medicare, Medicaid and other government health programs such as Indian Health Services) to Medicare, $397 billion would be redirected from employer/employee payments currently for employer based private insurance into Medicare, $95 billion would come from the earlier addition of prescription drugs into the system. This leaves only $41 billion unaccounted for out of the trillion dollar national health care price tag.
With a little research, possible sources for additional Medicare revenue abound: raising the Medicare combined employer/employee payroll contribution from 2.9% to 3.4% would generate $20 billion/yr, eliminating Social Security income cap currently $76,200 so all earned income would be taxed for both Medicare and Social Security would generate another $20 billion/yr, a corporate tax increase from 35% to 36% would generate $4 billion. Other possibilities include: surcharges on high income households, budget surplus, taxing non-wage income, higher alcoholic beverages tax, reducing the minimum level to pay estate tax $700,000 to $300,000, less increase in military spending.
Another source of potential relief to Medicare's financial woes lies in the recent trend toward setting a "living wage" in urban areas, designed to bring city workers and contractors above the poverty line. As of May 1999, inn 35 cities, including Boston, Detroit, Los Angeles and Minneapolis-St. Paul, companies that receive tax abatements from the city must pay their workers at least a living wage. These wage levels are set by local ordinance, and are usually in the neighborhood of $7 to $10 an hour, enough to lift full-time working families above the poverty line. In addition to better living conditions, and life out of dire poverty, living wages generate more Medicaid Part A payroll tax revenues, because larger salaries are taxed. While the implementation remains a separate task altogether, legislating a "living wage" requirement for a large enough segment of the American population could solve Medicare's solvency problems in and of itself.
In San Francisco, Board of Supervisors President Tom Ammiano's May 1999 proposed plan provides for the most sweeping living-wage law in the country. The proposed pay of $11 an hour plus health and other benefits would be required for most people in private firms who do work for the city and nonprofits that provide hundreds of millions of dollars in social services. The state minimum wage is currently $5.75 an hour, and the percent of the population below poverty level is (1995-96) 16.8%, 10th in the country.8 Disagreement over the potential cost to the city is driving the debate over the living-wage idea. Ammiano says it could be as little as $15 million to $25 million a year, but others say it could be more than $100 million. Among other big Bay Area cities, Oaklandts living wage is $8 an hour with benefits or $9.25 without, and covers only businesses or nonprofits with city service contracts. In San Jose, it's $9.50 with benefits and $10.75 without. It covers contracts of more than $20,000.
The position of Medicare is extremely precarious right now. It is sitting on the edge of bankruptcy a few years from now, its coverage is inadequate, its patient premiums are large, and it grossly under-reimburses providers to the point that they often refuse to take Medicare patients. Yet Medicare remains one of America's favorite entitlements, and most Americans would loathe to get rid of it altogether. Many people have put forth reform proposals, but most have focused only on the impending loss of solvency and financial problems. It seems Medicare reform needs to look at more than just delaying bankruptcy. Real ways of increasing cashflow into the trust fund need to be implemented, be it through increased taxes, higher wages or altered policy.
1. Epstein, Edward, "$11 Per Hour Minimum Wage Sought in S.F.; Mixed response to Ammianos pricey proposal," The San Francisco Chronicle, May 4, 1999, Pg. A17
2. "Right Way on Living Wage," The San Francisco Chronicle, May 5, 1999; Pg. A20 editorials.
3. Edward Epstein, Chronicle Staff Writer, "Three Blast Living-Wage Panel, Quit in Anger; Labor delegates accuse city of foot-dragging," The San Francisco Chronicle; May 27, 1999; Pg. A19.
4. Fishman, Sarah, "Living wage ordinance OKd by aldermen," The Boston Globe; May
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5. "A Guaranteed Job; Living-Wage Ordinances," The New York Times; May 20, 1999; Section A; Page 26; Column 6. (Chauna Brocht; Washington, May 17, 1999; a policy analyst at the Economic Policy Institute)
6. Kevin Flynn, News Staff Writer, "Ballot Shows Strong Support For 'Living Wage',"1 May 6, 1999; Denver Rocky Mountain News; Local; Ed.; Pg. 33A
7. "$11 minimum-wage plan aired," The San Diego Union-Tribune; May 05, 1999, From Union-Tribune news services; Pg. A-3
8. World Almanac of the USA.; Part II: Portraits of the States, California; 1998.
9. Marmor, T. The Politics of Medicare. Chicago: Adline, 1973, pp.59-i 24.
10. Ball, Robert, "What Medicare's Architects Had in Mind." Health Affairs, Winter
11. Iglehart, John, "The American Health Care System: Medicare," New England Journal of Medicine 1999; 340:327-32
12. Moon, Marilyn and Cage, Barbara, "Key Medicare Provisions in the Balanced Budget Act of 1997," The Public Policy and Aging Report. 1997; 8#4, pp.1,3-S.
13. Christensen, S. "Medicare+Choice provisions in the Balance Budget Act of 1997," Health Affairs. 1998 17(4):224-31
14. Bodenheimer, Thomas; Grumbach, Kevin; Livingston, Bruce Lee; McCanne, Don R.; Oberlander, Jonathan; Rice, Dorothy P.; Rosenau, Pauline Vaillancourt;
"Rebuilding Medicare For the 21st Century," A Challenge for the Medicare Commission and Congress, February 1999.
15. Sen. John Breaux, Opening Statement to the Medicare Commission, March 16, 1999.
16. Sen. Jay Rockefeller, Rep. John D. Dingell, Rep. Jim McDermott; "Dissenting Views On the Bipartisan Commission on the Future of Medicare," March 16, 1999.