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By Tom Cushing

Solving Medicare: Short and Long-term

Uploaded: Jan 9, 2013

On the assumption, perhaps dubious, that sanity may prevail and the House will take the debt-ceiling hostage gun from its own head, let's look forward to other matters. I just can't stand the thought that tea-who-shall-not-be-named would self-inflict that wound, again. I'll even bow to the doubtful proposition that Medicare, solvent until at least 2024, is a more urgent focus of our policy attention than the plight of the currently jobless. So, let's zero-in on solving the program that is wildly popular with its recipients, and remarkably efficient (3% administrative cost, vs. 10-20% for your health insurer) -- almost to the point of perpetual motion.

The Medicare Problem is that the combined symptoms of Boomer demographics and sky-rocketing health-care costs would make it The Program That Ate the Entire Federal Budget, if left untreated. Not tomorrow, or before 2024, but inevitably. Fortunately, there are short-and-long-term fixes available, if not easy to achieve.

The first thing to understand about Medicare is that it, like Social Security, is Trust Fund-based; money that comes in today as payroll taxes goes out tomorrow as benefits, with surpluses accumulating in the Fund (yes, Virginia, there has been surplusage!). It's not like a pension fund, where you have an account in your name that accumulates value over time. That's also why you can't tap into it for a dread disease you acquire in your 20s, and why it's never part of your estate. The Fund is like a reservoir that's in reasonable balance, but has been requiring a lot more upstream pumping-in to stay that way -- and downstream demand is still growing out-of-control.

The Boomer problem is that the payroll-tax-paying population base is smaller than it was when our parents were so prolific – hence the tax rates have risen dramatically. The cost problem feeds into the fact the Americans pay 18% of GDP for health care (and rising!), and get No-Better-Results than Europeans paying-in 9% of theirs. You could look it up.

So – what to do? Staying with the flow model, it's a "raise the upstream flow" and/or "lower the downstream demand" solution. The primary means by which to increase the upstream flow would be either or both of further payroll tax hikes or raising (removing, even) the income ceiling against which those rates are applied. That feeds more flow into the Fund. Regardless, it's clear from the numbers that this solution alone won't work.

So, one way to reduce downstream demand would be Mr. Ryan's famous vouchers, which were always, let's face it, a ploy to reduce benefits. Fewer dollars paid-out per Boomer = fewer total dollars required. Everybody but Mr. Ryan's mom seems to have figured-out that that would mean more out-of-pocket cost for seniors. Another way, probably more palatable politically, would be to raise the eligibility age for recipients, or to "means test" beneficiaries – thereby directing more care to lower income seniors. The problem with simply raising the age is that apparently the government then would end-up spending even more money treating uninsured, uncovered seniors, making overall savings illusory.

For my money, as it were, once I reject vouchers as a cruel ruse (and I do), a combination of means testing applied to age eligibility seems to make most sense on the economics and the ethics. I'm willing to assume that lower-paid workers as a population are prone to more geriatric illness, sooner, than their higher-paid counterparts, such that bringing them under the Medicare umbrella sooner makes sense. Is it a transfer – a subsidy -- from higher income seniors to lower? Yes – and if you disagree with that policy, please put yourself in-charge of strapping Grandma to that ice floe.

Regardless of what near-term solutions are chosen, if we stop there we will have engaged in the time-honored kicking-of-the-can-down-the-road. The real solution lies in bringing the gargantuan, metastasizing, fire-breathing, many-headed, un-managed but hopefully not unmanageable monster of a US health care system to heel. I'm not referring to doctors' bills, or just convenient whipping-boys like tort lawyers (even the Wall Street Journal zealots couldn't ascribe more than a few % to them), or "defensive practice," but systemic incentives to treat, but not prevent, to own under-utilized and very expensive equipment, uncoordinated records kept archaically, multiply hide the ball on actual costs, foot-drag on legitimate claims, end-of-life care focused on prolonging the organism but not its essence, etc., etc., on-and-on, ad-nearly-infinitum. Therein lies the solution that relieves the burden on everyone, including the Medicare reservoir.

Say, perhaps we could put all the unemployed folks to work on that?