ANALYSIS/OPINION:
Unless you’ve been isolated on Gilligan’s Island, you probably know Medicare spending is soaring. So are Medicare’s unfunded promises, now in the tens of trillions of dollars. You may also know that Medicare reform is coming to a theater near you, perhaps next year.
If you are like most Americans, you probably don’t know much more. But the more you know about Medicare, the more obvious, the more commonsense, and the more familiar reform becomes.
For example, you probably know some tax is taken out of your paycheck for Medicare. But unless you’re on Medicare, you probably think that tax bought your health insurance in retirement. Alas, not so. The tax only paid for part - Part A, to be specific, the oldest part.
The newer Parts — B, C and D — are partially funded by a beneficiary’s premium, but mostly by your fellow taxpayers, primarily through income taxes. This subsidy is more than $5,000 a year per Medicare beneficiary. With costs rising fast and the baby boomers about to retire, this subsidy cost is about to explode, meaning even bigger changes are coming.
If you’re not on Medicare, then you may think Medicare is as easy as signing up for government-run insurance. You probably don’t know most seniors have to sort through various complicated health-insurance options. Sure, the old Part A is automatic, but 35 million seniors choose from a list of Medicare-vetted private insurers for the drug benefit. And 12 million seniors elect comprehensive private coverage offered by Medicare-vetted private insurers in the Medicare Advantage program.
And that’s not all. About one in six seniors buy Medigap coverage from private insurers. Medigap fills in the gaps in Medicare coverage. The point is, seniors are very familiar with choosing their coverage plans, and they generally like choosing what best fits their needs.
Medicare reform should ensure low- and middle-income seniors have the coverage they need and expect at a price they can afford, while keeping the program affordable for the rest of us. This means tying beneficiaries’ premiums to their income levels. The higher the senior’s income, the higher the premiums.
What you may not know is Medicare premiums are already tied to income levels, but at levels implying the beneficiary is either a highly paid executive or really, really well off. Part of the debate in Medicare reform will be which seniors need a full subsidy, which a partial, and which should be asked to pay their own freight.
In short, the bulk of Medicare involves beneficiaries paying premiums covering a portion of their insurance costs. Much of Medicare involves seniors picking among private health insurance plans. Many seniors also pick among private plans to fill in Medicare’s coverage gaps. And premiums seniors pay today are already tied to income levels, with beneficiaries who have higher incomes receiving less in subsidies.
Medicare reform should then just extend these principles. Consolidate the Parts into one, unified program. No one buys separate car insurance for the front of the car and the back. Seniors should be able to buy one policy, not be forced to buy two or three.
Next, let seniors choose from among comprehensive private plans vetted by Medicare, or continue to purchase traditional plans.
Then, provide significant subsidies to low- and middle-income seniors whatever plan they choose (as we do today), while asking those with more of their own resources to pay their own way.
For seniors, Medicare would remain very familiar, but it would be a vastly simplified, more coherent, fairer and affordable.
Medicare is effectively a vast government-run insurance company operating alongside private insurers - sometimes inside the Medicare tent; sometimes outside, in the case of Medigap. After reform, the Medicare apparatus would be out of the insurance business and fully into the regulatory and supervisory business.
In short, Medicare evolves from a hodgepodge to an approach called “premium support” in the geek literature. But it really is a secure choice for Medicare. Secure, because it provides true security for America’s seniors and because it leaves Medicare financially sustainable - security for seniors, security for taxpayers. Choice, because seniors choose the coverage that best fits their needs.
This approach to Medicare reform has enjoyed bipartisan support for many years. It’s evolutionary and natural. There’s nothing radical about it.
• J.D. Foster is the Norman B. Ture senior fellow in economics of fiscal policy at the Heritage Foundation (www.heritage.org).
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