Last week we noted that the Social Security system is going broke. Medicare, though, which provides for the health of America’s seniors is already broke.
With 77 million baby boomers retiring, and a $716 billion reduction in future funding of Medicare thanks to the Affordable Care Act (Obamacare), Medicare may be in an even more precarious financial condition than the Social Security system.
Trustees for the Social Security system are also trustees for Medicare and wrote in their recently released annual report that Medicare Part A, which helps pay for hospital care, home-health services following hospital stays, skilled nursing and hospice care for the aged and disabled “fails the test of short-range financial adequacy, as its trust fund ratio is already below 100% of annual costs, and is expected to stay about unchanged to 2021 before declining in a continuous fashion until reserve depletion in 2029.”
Medicare Part B, which pays for physician, outpatient hospital, home health and other services, and Part D, which subsidizes drug coverage, are financed from premiums and general revenues, so they are currently adequately funded, but their costs are expected to rise steadily. So higher taxes and higher premiums will be needed to support them.
The federal government spent $595 billion on Medicare, in the 2016 fiscal year, but adding on the cost of premiums and other funds collected brings the total cost to $699 billion.
Based on “the expectation of continued growth in the use and intensity of goods and services coupled with more baby boomers reaching the age of Medicare entitlement,” Medicare spending is projected to grow at an average rate of 7.1% for 2016-25, according to the Centers for Medicare & Medicaid Services.
Why Medicare Is Unsustainable
As with the Social Security system, one reason that Medicare is in financial trouble is that people are living longer, which means they are relying on Medicare for a longer period. And, with more than 77 million baby boomers retiring, a growing number of people are relying on the system.
In addition, though, government programs typically aren’t known for their efficiency.
As Investor’s Business Daily noted, “Medicare has repeatedly suffered vast cost overruns, has been ‘reformed’ countless times and has imposed a seemingly endless series of price controls on doctors and hospitals.
“And even with all this tinkering, the program’s Hospital Insurance Trust Fund will be insolvent in 15 short years, after which Medicare Part A will run annual deficits that quickly top $200 billion. Closing that gap will require either deep benefit cuts or sharp tax hikes.”
They are supposed to be doctor’s offices, clinics or hospitals, not hamburger stands, vacant lots and mailbox shops, but that’s what some of the 23,400 potentially fake or bad addresses on Medicare‘s list of health care providers are, according to a report released today to Congress from the U.S. Government Accountability Office (GAO).
CMS estimates that about $60 billion a year, or more than 10% of Medicare’s budget, is lost to fraud, waste, abuse and improper payments.
Government Healthcare Is Here!
Search online and you’ll find plenty of reports saying that Obamacare is improving Medicare’s financial condition, because it adds a small amount of funding to Medicare Part D.
Obamacare spends $48 billion more on Part D while cutting the rest of Medicare by $764 billion. The net amount it cuts is $716 billion, shifting the spending to Medicaid. Given its shaky financial condition, why did Obamacare shift $716 billion from Medicare to Medicaid? One possible explanation is that it provided a way to place more of the healthcare system under government control.
While Medicare is a federal program, Medicaid is administered by state government and is partially funded by states; the federal government pays an average of 57% of the costs. Obamacare created an incentive for states to add to their Medicaid rolls by paying 100% of the cost of newly eligible adults, with the percentage dropping to 90% in 2020.
Medicaid is projected to cover 73.5 million Americans this year and Medicare covers more than 55 million Americans, with the number projected to jump significantly in coming years as boomers retire.
Many people think of the U.S. as having a private healthcare system, because most employers provide health insurance to their employees. Yet, as of 2015, CMS says, government accounted for nearly half of the healthcare spending in the U.S. – 28.7% for the federal government and 17.1% for state and local government. In comparison, private employers accounts for 19.9% of healthcare spending.
Yet Forbes notes that the CMS significantly underestimates federal expenditures “by counting Medicare payroll taxes as being paid by employers and employees (i.e., households) and by ignoring the literally hundreds of billions of dollars in health-related tax expenditures – the largest of which is the tax exclusion for employer-provided health coverage.”
Forbes says government already accounts for 65% of healthcare spending and projects that by 2025, government will be responsible for more than two thirds of the country’s healthcare cost.
Doesn’t that sound like a “single-payer” system? Socialized medicine, here we come!