Commentary

Let Seniors Get Off the Sinking Medicare Ship

By Sue A. Blevins
April 7, 2004

The warning signs are clear. It’s time to allow seniors to get off the sinking Medicare ship and seek private sector alternatives for health insurance.

Overseers of the Medicare trust funds recently warned that the hospital fund (Medicare Part A) is scheduled for bankruptcy much sooner than previously estimated. Last year, trustees estimated that under “intermediate assumptions” the program would run out of money in 2026. This year, they say it will go broke in 2019 under those same assumptions. However, if there is higher-than-anticipated demand for services or less favorable economic conditions, the hospital fund could become exhausted as early as 2012, in just eight years.

Opponents of the new prescription drug benefit will try to blame Republicans for the financial peril of the Medicare hospital trust fund. But what many people may not realize is that the new drug benefit (Medicare Part D) will be financed through an entirely different trust fund. Like the outpatient doctor program (Medicare Part B), the drug benefit will be supported primarily through general tax revenues and premiums paid by beneficiaries. All told, the new drug benefit is projected to cost $916 billion between 2004 and 2013, with general tax revenues supporting $689.5 billion of that benefit.

Annual spending for all Medicare programs combined is expected to grow from $304.5 billion in 2004 to $690.6 billion in 2013. Total program costs are anticipated to be more than $5 trillion between 2004 and 2013.

Meanwhile, the forthcoming hospital trust fund bankruptcy and high prescription drug spending are expected to occur around the same time that some 76 million baby boomers start entering the Medicare program in 2011. And during this time there will be fewer workers per retiree to pay Medicare payroll taxes and general income taxes to support promised benefits to retirees. By 2030, only 2.3 workers will be available to support each Medicare beneficiary compared with today’s four workers per beneficiary.

Given the evidence that Medicare has reached a midlife crisis and needs a major overhaul, two of the first steps that Congress and the president should take to reform the program now are 1) permit seniors to pay privately for health insurance and 2) restore seniors’ legal right to contract privately with physicians.

Currently, nearly all seniors are forced to join Medicare Part A (the hospital insurance program and the portion of Medicare that is heading for bankruptcy very soon) when they apply for Social Security benefits. Seniors cannot reject enrollment in this program unless they forgo all of their cash Social Security benefits. This means that those seniors who prefer to pay privately for catastrophic health insurance are denied this freedom and instead are forced to join Medicare Part A and use scarce resources, even if they’d rather pay out of their own pockets for private health insurance.

Another Medicare reform issue that needs correction is to restore seniors’ legal right to contract privately with physicians. Currently, doctors who accept private payment from Medicare beneficiaries for services covered under the program are forced to stop seeing all Medicare patients for two years. This essentially forces doctors to stop accepting private payment from seniors, many of whom are enrolled in Medicare Part B. Congress and the president should restore seniors’ legal freedom to pay privately for Medicare-covered services and restore physicians’ freedom (under Medicare Part B) to accept private payment from elderly citizens without paying a huge penalty.

This issue is especially critical for future seniors who may have accumulated significant funds in Health Savings Accounts (HSAs) over the coming years. Unless seniors’ freedom to contract privately under Medicare is restored, they won’t be able to use HSA funds to pay for services that Medicare covers. (But, of course, they could spend their HSA funds on services not covered by Medicare.)

American seniors deserve the dignity and freedom to choose to pay privately for their health insurance and health care, especially given the warnings about Medicare’s financial future. Even socialized countries like the United Kingdom allow citizens to pay privately for services covered under government health programs. Certainly the land of the free should restore and protect these precious freedoms.

Sue A. Blevins, president of the Institute for Health Freedom, is the author of Medicare’s Midlife Crisis (2001).