Those of you familiar with your current health care costs will see this as a great deal, particularly for older folks who need a lot more care than the rest of us. That’s the problem, though, the deal is too good, as we’re not paying enough to cover all the costs. Medicare deficits are driving our country’s finances into the hole in a big way.
Our payroll taxes (1.45% for you, another 1.45% for your employer) cover only about one third of Medicare’s cost. Premiums and copayments paid by our seniors cover another quarter. The difference, about 40%, our government borrows, increasing our deficit. This year, that deficit is about 285 billion dollars, and will keep rising as health care costs skyrocket, particularly for those needing expensive end-of-life treatments and care.
There are three main ways to deal with this deficit – (1) limit payments to doctors, hospitals, and pharmacies; (2) limit how much the government pays for the insurance itself; or (3) raise premiums and payroll taxes. Medicare currently uses option (1), but would have to reduce payments even more radically to balance their books. Doctors are already turning away Medicare patients because they can get higher payments from younger people. Further payment reductions would mean fewer doctors available to our seniors, and likely rationing of care.
Republicans are proposing option 2, opening Medicare up to private insurers and setting a cap on the government contribution to the premiums. The hope is that private insurers would compete with traditional government Medicare (which seniors could still choose), reducing premiums. This seems overly optimistic though, since a similar plan – the Federal Employees Health Benefits (FEHB) program - has seen its costs rise by a total of 30% over the past 4 years. The Republican proposal would have capped its premium contribution by only 15% over that time. Our seniors would need to either eat that difference, or choose a cheaper, weaker health plan.
Option 3 is the simplest, and may make the most sense. Doubling the 1.45% payroll tax would just about cover our current budget overruns. However, our politicians never have the backbone to tell us that tax increases are necessary, even when they are.
Whether we give our premiums and copays to the government or to a private company, some means of addressing the real problem – holding down the costs of medical care in our country – is necessary. This means limiting malpractice awards and capping allowable profit margins at insurance agencies, pharmaceutical companies, and hospitals. Combine that with modest increases to taxes and premiums, along with raising the Medicare eligibility age, and Medicare will be on sound footing again. Democrats and Republicans have both suggested these ideas in the past. Now it just takes bargaining and compromise to fix Medicare, something that's been in short supply in Washington lately.