Posted by Bob Lord
One key factor contributing to the projected Medicare
funding shortfall is the longer life expectancies of Americans. The Medicare
trustees’ report actually includes assumes that just a few decades from now the
life expectancy for a woman turning 65 will be age 89. That means we'll have huge numbers of 90+ year olds roaming around, if the assumptions prove accurate.
The knee jerk reaction of those on the right (with supposed
centrists all too eager to follow along) is to raise the Medicare eligibility
age. But, for the fair minded, it’s not that simple, because life expectancies have not increased
uniformly for all income brackets. Those at the top truly are living much
longer. Those closer to the bottom? Not so much. Indeed, recent data suggests
that life expectancies may be declining for those near the bottom of the income
scale. It’s not hard to figure out that raising the Medicare eligibility age is
unfair because of differing life expectancies. I’ve written about this in a
previous post regarding social security, but the same principles apply. Obviously, if one income group has a 15-year life expectancy at
age 65 and another income group has a 20-year life expectancy at age 65, the
first income group loses a larger portion of its benefits if the eligibility
age arbitrarily is increased from age 65 to age 67.
It’s admittedly a tricky problem. We know some people are
going to live really long lives and those long lives are breaking the Medicare
bank. But we don’t know which people are going to live long lives. So, the
logic goes, we should just cut the first two years off everyone’s
eligibility. It sounds like a fair
solution, until you learn that there’s a correlation between life expectancy
and wealth and income. At that point, the logic breaks down, especially when
you consider that the folks with less income and less wealth are the ones whom Medicare was supposed to help in the first place. To be put it more crassly, we
didn’t enact Medicare to provide health care for old rich people.
What if, instead of squeezing 65 and 66 year olds, we
squeezed those who live the really long lives? You know, the folks who are
causing the problem. No, I’m not suggesting we cut off benefits for anyone over
85. But the essence of Medicare is that it is an insurance program. We pay in
while we’re young and receive coverage once we reach age 65. As with any
insurance program, we don’t know whether it’s a good or a bad investment. If we
only make it to age 66, our Medicare taxes prove to be a terrible investment.
But if we make it to age 103, we hit a home run.
So, why not recognize that those who live beyond
the life expectancy upon which their Medicare taxes were based have recovered
their investment and any benefits they receive after reaching that life
expectancy are profits, which, like other profits, may be subject to tax? Because Medicare benefits are by definition spent as soon as they are received,
the tax would have to be structured carefully in order to avoid financial
hardship for those without sufficient means. Admittedly, this would be far more
complicated than lopping off the first two years of everyone’s Medicare
eligibility, and it's far beyond my capacity to estimate how helpful it would be in eliminating the underfunding. But it has two advantages that offset the added complexity: it’s
more rational and it’s fairer.
Bob, why not allow Medicare to bargain with pharma on drug prices as the VA does? That would save big $$$ and Medicare without raising the eligibility age.
From a big picture perspective, I agree with you. My idea was directed more to the immediate challenge of developing an alternative to increasing the eligibility age, which, in my mind, is a proposal fully intended to force those at or near the bottom to bear most of the burden associated with the Medicare funding problem.
As for making the wealthy pay more before age 65, there are gaping holes in the new Medicare tax on incomes over $250K. Plugging those holes would be a good place to start.
Bob,
I find it hard to imagine how the tax could possibly be structure to avoid financial hardship, but maybe someone else could describe what that would look like.
I understand what you are saying with your example of the multimillionaire, but even a direct means-testing of Medicare is not going to save much money and it comes at the cost of making the system more complex and more expensive to manage as well as political costs of making the program even more open to attack. One of Medicare’s true benefits is that it has such a low administrative overhead and people don’t have to be in contact as much with bureaucracy – doing some type of income verification and such would damage that. Also, taking a universal program and means testing is a great way to turn a popular universal program into a ‘welfare’ program with far less support. I just don’t see how the meager savings from your plan would be worth weakening either of the benefits I mention.
A far easier approach would be to simply make the wealthy pay more before they turn 65. The same is true for Social Security.
Todd, in my post I specifically acknowledged: Because Medicare benefits are by definition spent as soon as they are received, the tax would have to be structured carefully in order to avoid financial hardship for those without sufficient means.” So I obviously did not envision taxing folks on modest fixed incomes.
But we do have very wealthy people living to very old ages whose return on their investment in Medicare is outsized compared to the population at large. Does is really make sense to allow a 99 year-old multimillionaire to receive a million more in benefits over his 34 years on Medicare than he paid into the system entirely tax free, so that he can pass on his million dollar savings to his 72 year-old son, who himself already is pulling benefits out of the Medicare system and, at the same time, tell a 65-year old janitor whose body is broken down from 45 years of manual labor that he has to wait two more years to receive benefits?
I’m aware of the problem with payments made disproportionately in the last year of life, but that doesn’t mean the length of life is not driving up costs. If someone lives into his 90s, the payments made for his benefit far exceed his contribution into the system even before he hits that last year of life.
You’re correct about the problem of costs, but if we find ways to make those at the top bear more of the burden of those costs, as I’m suggesting, we’re more likely to see movement in the right direction on costs as well.
How would these 87 year olds pay this tax? Out of their already fixed income? Go out and get a part-time job? Sorry but that makes no sense.
More importantly, about 30% of Medicare payments are made in the last year of life, and this percentage seems to be increasing. This means that the length of life has far less impact than you seem to think.
I think the issue here is that you attribute the problem to people living longer. Most any ‘reform’ to Medicare will make little difference to the long term viability of the program since the underlying problem is the skyrocketing healthcare costs in the US. If we had the same per capita costs as other countries we would be looking at long term budget surpluses.