Medicare Trustees Report

The latest report issued by the Medicare Trustees is not good.

The HI annual cost rate is projected to increase from 3.11 percent of taxable payroll in 2007 to 11.40 percent in 2082—8.02 percent of taxable payroll more than the projected income rate for 2082. Expressed in relation to the projected Gross Domestic Product (GDP), HI cost is estimated to rise from the current level of 1.5 percent of GDP to 4.8 percent in 2082.

[…]

The financial outlook for the Medicare program continues to raise serious concerns, and a “Medicare funding warning” is triggered again by the findings of this report. Total Medicare expenditures were $432 billion in 2007 and are expected to increase in future years at a faster pace than either workers’ earnings or the economy overall. As a percentage of GDP, expenditures are projected to increase from 3.2 percent in 2007 to 10.8 percent by 2082 (based on our intermediate set of assumptions). Growth of this magnitude, if realized, would substantially increase the strain on the nation’s workers, Medicare beneficiaries, and the Federal Budget.

[…]

HI tax income and other dedicated revenues are expected to fall short of HI expenditures in 2008 and all future years. The HI trust fund does not meet our short-range test of financial adequacy, and fund assets are projected to be exhausted in 2019.

So, in 11 years the Medicare Fund assets will be exhausted. And yet the solution to this problem is to expand government programs for health care and as a result increase demand for health care resources…which will some how work some sort of magic and make everything cheaper.

In the long range, projected expenditures and scheduled tax income are substantially out of balance, and the trust fund does not meet our test of long-range close actuarial balance. Currently, this imbalance is relatively small, with dedicated revenues estimated to cover 94 percent of costs in 2008, but it will grow rapidly in the absence of changes to current law: taxes would cover 78 percent of estimated costs in 2019, and only 30 percent at the end of the long-range period. Closing deficits of this magnitude will require very substantial increases in tax revenues and/or reductions in expenditures.

In other words, the party is about over and either taxes have to go up, expenditures have to be curtailed or both. The idea that we can have more health care (i.e. universal coverage at current levels of care)1 and lower costs is simply not an option. Anybody who says otherwise is either a liar or an idiot.

As noted previously, over the full 75-year period, the fund has a projected present value unfunded obligation of $12.4 trillion. This unfunded obligation indicates that if $12.4 trillion were added to the trust fund at the beginning of 2008, the program could meet the projected cost of current-law expenditures over the next 75 years.

Oh no problem there, our current GDP is….$14.185 trillion, we’ll simply move over an entire years worth of GDP to Medicare and there we go problem solved.
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1I imagine some might not quite understand this point, I’m saying that sure we can have universal care, but that that care will have to decrease in quality if you are not to spend more money. You can’t get better care at a cheaper cost.

FILED UNDER: Economics and Business, Government, Health, US Politics, ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. anjin-san says:

    Steve,

    I am curious to hear some of your ideas for a solution. Go more towards the private sector? Can the richest society in world history create adequate health care for its citizens?

    I listen to McCain and I get a bad feeling. A year ago I got a nice contracting gig and gave up my employee position and its benefits. Shopped for individual health care. Got turned down for any kind of HMO plan. I am a 49 year old vegetarian who does not drink, smoke or have a weight problem. I work out. I do have high blood pressure, but so did my grandmother who lived to be 98. I got turned down because of “pre-existing conditions”. Luckily I was able to get coverage thru my wife’s job.

    In January, my wife had a kidney stone, and we spent half a day in the ER. No problem, we have a $100 co-pay for ER visits. Only problem is a copay is not really a copay anymore, and we have nearly 2k in additional bills related to the ER visit. Well at least we have the money, but say goodbye to our vacation this year. Since we both work 50+ hours a week, it is not unreasonable to want to take a vacation, I think.

    Anyway I am not trying to be argumentative, I am just curious to hear your ideas for solutions. My take is that the direction the GOP is taking us in is that quality health care is only for the healthy and the wealthy.




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  2. Rick DeMent says:

    Well one thing they could do is cut out the stupid gimmicks like the latest round of “economic stimulus” welfare checks they just started sending out. Why not criticize that Steve. Please don’t tell me you actually bought the idea that because it was stamped tax rebate that it was anything more the government welfare?

    The fact is that unless you are advocating that we refuse care to anyone who can’t pay then most any kind of universal health plan is cheaper then what we have now. Personally I can think of nine ways form Friday to make health care cheaper, but any plan you come up with will take money out of the pockets of some powerful group or another.

    And please we have health care rationing right now, it’s rationed based on ability to pay.




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  3. Beldar says:

    “[W]e can have universal care, but that that care will have to decrease in quality if you are not to spend more money.”

    I’m a firm believer in TANSTAAFL. And if the amounts currently being charged for health care goods and services were set by a competitive and well-informed free market, I’d be inclined to agree.

    But they’re not. They’re set in a marketplace that’s riddled with disconnects and irrationalities. If the market for automotive products were similarly distorted, we’d be driving extraordinarily ugly $200k cars that get 8 mpg and top out at 35 mph.

    The fact is that we don’t know what further efficiencies could be wrung out of the health care marketplace. We’d begin to get some clue as health insurance was de-coupled from employment with large companies.

    Both Democratic presidential candidates’ plans for “universal health care,” however, go in the opposite direction. Not many confident projections can be made about how they’d work out, but they clearly are not going to subject the health care industry to the benefits of a genuine marketplace.




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  4. Anon says:

    Well, one way to jump-start a free market in health care is to allow anyone to buy any medication, and also allow anyone to practice medicine. I don’t see either party pushing that, though.




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  5. Perhaps Anjin-san can explain why it should be my responsibility to pay his medical bills, because ultimately that is what he is advocating. This “richest society in the world” claptrap reminds me of Willie Sutton’s comment about why he robbed banks. And, pray tell, what do you propose to do when, as Ten Year’s After once asked, there are no rich no more? We became the “richest society in the world” by protecting property rights and allowing people to be free. We certainly didn’t set out to achieve this goal just to piss it all away for one selfish generation’s health care. The ever increasing demand for entitlements is disheartening, dishonest and in the long run utterly unsutainable. Just for fun, check the budgets of a lot of states that have splurged the last few years during surpluses rather than setting up rainy day funds.

    Ack.




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  6. anjin-san says:

    Charles… do you get out much?

    God forbid this should actually happen, but let’s say you are driving along, minding your own business. A drunk drive runs a red and slams into you.

    Two days later you wake up in the hospital, a quadriplegic. In six months, your assets are gone. You can’t work. You need to retrofit your home. You need nursing. You need special care just to keep you alive. You can’t take care of yourself, much less your family.

    Guess what, you are going to be a charity case for the rest of your life. Others, people you never met, will be supporting you. A heart attack can do to you. A stroke. If you think this can’t happen to you, you live in a fantasy world. It’s happened in my family, and I put out 25k + a year to help out. That 25 grand does not even come close to covering the costs.

    Christopher Reeve was a movie star, and his accident costs burned up his assets in a few years. He was fortunate to have friends who were both loyal and wealthy. Any one of us can loose our health at any time. If that happens, just see how much the free market cares about you.




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  7. Our Paul says:

    Steve Verdon is doing all of us a service by bringing to our attention the Medicare Trustees report. Unfortunately, he fails to identify where the failures lie, or to present reasonable solutions.

    Start with data that is accepted and beyond dispute: The current United States Health Care system is more expensive, by any index, than any other industrialized country in the world. The question is why

    To answer the why one has to recognize Health Care Zombies. These strange ever-living creatures are the myths that surround Health Care. They cannot be discredited no matter how much data is presented to counter their evil influence. For example consider Steve Verdon’s closing statement:

    I imagine some might not quite understand this point, I’m saying that sure we can have universal care, but that that care will have to decrease in quality if you are not to spend more money. You can’t get better care at a cheaper cost.

    Comparison data clearly shows that specific health care outcomes between those industrialized countries with lower Health Care costs are equal or better than those in the United States.

    The secrete of these industrialized countries success in cost containment while providing quality Health Care is government sponsored, universal, single payer reimbursement mechanism. Steve is buttressing his ideological argument with a Zombie.

    Why does it work over there, but not here? Back to Medicare.

    Medicare since its inception was government sponsored, universal, single payer reimbursement system for those over the age of 65. Providers (doctors, hospitals, nurses, physical therapists etc) would submit a standardized bill, and get their payment. Worked reasonably well, indeed there is evidence that health of individuals improves once they became eligible for Medicare. Where oh where, and why, did it go wrong?

    But, first: Americans pay two times more for their medications (drugs) than any other industrialized country in the world.

    Drift back to 2003, when Medicare Part D, the drug payment was enacted. It was termed the Medicare Modernization Act and contained the seeds of the problems we see today. First of all, it “Privatized “ Medicare, turning its core function over to the Insurance Companies and Health Maintenance Organizations. Second, it gave them extra payment for enrolling Medicare recipients. Third, it contains a series of provisions which weaken Medicare itself, and the ability of consumers to seek legal help from the Companies which now administer Medicare.

    Now then, Insurance Companies, or Health Care Companies, are not in business of providing Health Care, they are in the business of making money. Money for their stockholders, and money for their high priced executives; they will game the system where ever they can, on a macro bases, micro bases, and personal basis as much as they can. Anjin-san’s experience is not unusual, it is the norm…

    One can become a nihilist, such as Charles Austin, and retreat to the Cave where only rugged individualist live. One can become a bit of cynic like Beldar and retreat to the Free Lunch philosophy, but fail to examine the question of where can you get the cheapest and best lunch. My preference, is to shot Health Care Zombies. It is a never ending sport!!!

    The solution is obvious, government sponsored single payer system. It exists today for members of the Armed Forces, why not for all citizens?

    For those who wish to explore the issue, the latest American Prospect has a series of articles examining some of the above issues. For those whose fun bone is tickled by absurdity, consider the attempt to pressure foreign governments to pay more for their drugs, under the theory it would decrease our costs.

    In the words of Steve Verdon: “Anybody who says otherwise is either a liar or an idiot.” I join a legion, there is no hope.




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  8. Michael says:

    Well, one way to jump-start a free market in health care is to allow anyone to buy any medication, and also allow anyone to practice medicine. I don’t see either party pushing that, though.

    I’d like to see that, especially if medical education would get integrated into public schools.

    Sure, people are going to screw up and hurt themselves, even kill themselves. Some may kill their kids, spouse, or parents while trying to help them. It’s not being agreeable to such a situation that is keeping health care out of the hands of the masses.




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  9. Yes, I do get out. And I fund a large percentage of health care for my employees, but that’s another argument for another day. What I don’t do is base policy or philosophical arguments on worst case anecdotal hypotheticals.




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  10. Dave Schuler says:

    Rather than getting our tails tied up in knots with details of current policy, let’s get back to basics. What problem are we trying to solve?

    If the problem we’re trying to solve is how do we keep from being beggared by catastrophic health crises then the current system isn’t bad. That’s what it was designed for after all.

    This report demonstrates that the system needs some tweaking. I’d suggest means testing (although I know that’s anathema to a significant proportion of those who are most enthusiastic about extending the present system).

    However, if the problem is how do we extend some basic level of health care to substantially more people than are receiving it now, I’d suggest that there are really only two alternatives—either we can increase the supply of healthcare substantially (alluded to above) or we can institute a system of price controls and subsidies (the direction we’re being prompted in).

    For more than a century the official stated policy of the medical profession in this country has been fewer better doctors. It’s been a successful one. However, I think that a course correction is necessary. We need a lot more health care than is currently available as in not 10% or 30% more but as in 100% or 300% more. I think that with care and prudent policy it’s possible for us to do that without completely throwing public health to the winds. The country is a lot different than it was 100 years ago. Many, many more people are literate than were then. Information is a lot more readily available.

    The alternative is likely to have the perverse effect of reducing the supply while increasing demand.




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  11. anjin-san says:

    What I don’t do is base policy or philosophical arguments on worst case anecdotal hypotheticals.

    In other words, you are ducking. When one is planning for their families health care needs, you damn well better thing about worst cases.

    I suspect you know very well that a catastrophic illness or accident could wipe you (or me, or any of us) out, taking you from a proud and independent guy to a charity case, with others, strangers, footing the bill.




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  12. Our Paul says:

    Two separate issue: (1) the impending problems that Medicare program faces, and (2) what to do about Health Care services to those who due to age are not eligible for Medicare.

    Unless we distinguish between these two separate issues, we will get lost in ideological arguments. Let’s look Medicare:

    Traditional Medicare is almost universally cherished by Americans of all ages, on a level with Social Security. When Medicare was enacted in 1965, 50 percent of all Americans 65 or older had no insurance. Now Medicare provides health insurance for more than 95 percent of older people as well as for people with disabilities. It has also dramatically reduced poverty for older people and their families.

    This brief description of the program is by Judith Stein (Center for Medicare Advocacy, Inc.) I would read the quoted link, and ponder the issue…

    Let us take Dave Schuler’s advice and focus. We can decrease the cost of the Medicare program by decreasing the benefit, increase revenue by higher taxes, or introduce cost saving measures. David Schuler suggests means testing and increasing the supply of physicians. And then, he is off on the tangent:

    However, if the problem is how do we extend some basic level of health care to substantially more people than are receiving it now, I’d suggest that there are really only two alternatives—either we can increase the supply of healthcare substantially (alluded to above) or we can institute a system of price controls and subsidies (the direction we’re being prompted in).

    Keep your eye on the ball David, it is Medicare we are talking about. Among the less recognized services it provides are: Hospice service, Out Patient and Nursing Home rehabilitation, specific Visiting Nurses Home Care, and a many of other services such as Diagnostic Radiology.

    The fiscal problems with Medicare began in 2003, with the passage of the Medicare Modernization Act. Included was Medicare Part D, an attempt to alleviate medication cost. To administer this program, Insurance Companies and Health Maintenance Organizations were given an incentive of 13 to 17% of cost. This is a job Pharmacist do daily!!!

    The Drug Benefit was a gift to Big Pharma, and as would be expected the price of drugs have risen dramatically since its inception, out stripping the expected increase in cost of living. The 13 to 17% premium is a recurrent gift to the Insurance Industry and Health Maintenance Organizations.

    Back to Dave Schuler:

    If the problem we’re trying to solve is how do we keep from being beggared by catastrophic health crises then the current system isn’t bad. That’s what it was designed for after all.

    I just do not agree, our Health Care System is on the edge of a disaster. Steve Verdon started the discussion by pointing out the problems Medicare faces. Anjin-san pointed to his own problems with the “magic” of the “free market” Health Insurance Industry. Said it before, I will say it again, his problems are the norm.

    Full Disclosure: I am a retired physician. I have two major problems: (1) I believe that excellence in medical care is not a benefit to be handed out as a bit of enticing candy to join the Armed Forces, or as a tax free benefit to those who have climbed the Corporate Ladder. (2) Like all those who have had their brush with Academia, I have too much of tendency to buttress my arguments with references (links). For that I apologize, but will point out that they are carefully chosen, and instructive.




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