Last week, at a rally in New Hampshire, Donald Trump proclaimed, “Medicare works! You get rid of the fraud, waste, and abuse, and it works!” That probably shouldn’t come as a surprise from Trump, who once advocated a single‐payer health‐care system for the U.S., and who also still believes that the Canadian and British health‐care systems “work.” But Trump is hardly alone.
Among his fellow Republicans, Mike Huckabee criticizes Medicare reform plans for attempting “to rip this rug out from under people who have dutifully paid in their entire lives to a system.” And John Kasich has dismissed critics of the program as “crazy.”
Meanwhile, on the Democratic side, Bernie Sanders is calling for “Medicare for all.” And Hillary Clinton warns that any attack on Medicare “is an attack on seniors and vulnerable Americans.”
One would hardly know that Medicare is, simply put, a mess.
Medicare is currently facing unfunded liabilities of more than $43 trillion. And that assumes that the slowdown in the growth of health‐care costs that began in 2007 continues. If health‐care costs return to traditional growth rates — and there is some evidence that this may happen — then the unfunded liabilities could be trillions more.
Sure, there is a great deal of fraud, waste, and abuse in Medicare. Some estimates put the combined cost of fraud and improper payments at almost $60 billion per year. Much of Medicare’s waste and abuse stems from the program’s structure. Medicare’s advocates are always bragging about how the program’s overhead and administrative costs are lower than those for private insurance companies. It’s true that Medicare’s administrative costs are low (although often understated). But that is because Medicare is essentially a check‐writing program. A provider sends in a bill; Medicare sends back a check. That’s an open invitation to error and fraud.
But Medicare’s real problem is not fraud and abuse but basic math. For example, according to the left‐of‐center Urban Institute, a married couple with two average earners turning 65 in 2020 will have paid roughly $154,000 in Medicare payroll taxes over their lifetimes. That certainly seems like a lot of money. But, given average life expectancy, that same couple can expect to receive $479,000 in benefits (net of any Medicare premiums they pay). It’s hard to see a program that loses $325,000 per couple as “working.”
Or consider the demographics. In 1987, there were just under 25 million Americans on Medicare, and the program spent roughly $2,000 per year in benefits for every enrollee. But we are aging as a society, and health‐care costs have risen. Today, there are nearly 56 million Medicare recipients, and the annual cost of treating each of them has risen to more than $12,500. And projecting forward, in less than a decade there will be 72 million enrollees, each with an annual cost of almost $19,000. It’s hard for a program to work by losing money on every transaction and trying to make up for it in volume.
And, because Medicare plays such an outsized role in overall U.S. health‐care spending — more than one out of every five dollars in health‐care spending takes place in the Medicare system — the program may well have helped drive up overall health‐care costs in this country.