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A Prescription That Would Bust the Budget
People on Medicare are the only group in our society who need to purchase a second insurance policy to fill the gaps in their primary health plan. Even after doing that, many seniors do not have the coverage for prescription drugs that non-seniors take for granted. To "solve" this problem, both Republicans and Democrats are engaged in a shameless bidding war to court elderly voters in this election year. Let us hope that none of the proposals being debated in the Senate this week is actually adopted. Any legislation passed at this point will mortgage the future of our children and grandchildren -- pledging an enormous amount of the income of taxpayers not yet born just to meet the needs of elderly retirees. *** The reason why seniors have a problem with prescription drugs is well known. Medicare violates almost all principles of sound insurance. It pays too many small bills the elderly could easily afford themselves, while leaving them exposed to thousands of dollars of out-of-pocket expenses, including drug costs. Each year about 750,000 Medicare beneficiaries spend more than $5,000 out-of-pocket. About two-thirds of Medicare beneficiaries acquire supplemental insurance. Most of these Medigap policies do not cover prescriptions, however, and coverage is often incomplete among those that do. Ironically, the poorest seniors often have the best drug coverage because they qualify for Medicaid, the joint federal-state health program for the poor. What is generally not understood is how wasteful it is to have seniors paying two premiums, one for Medicare and one for Medigap insurance. Seniors with both types of coverage spend about 30% more on health care, on average, than seniors covered by Medicare alone. The only thing more wasteful than paying two premiums to two plans is to pay three premiums to three plans -- the idea that appears to garner the most support from members of Congress, although they pay only one premium to one plan to get their own health insurance.
Of course, there will be future payroll tax revenues to meet some of these commitments, but they will be nowhere near what is needed at current tax rates. By the time today's teenagers retire, the federal government will likely spend more on their health care than on their Social Security checks. Yet the Medicare payroll tax rate is only about a third of the tax rate that funds retirement income. By 2030, about the mid-point of baby boomer retirement years, one of every five dollars of income tax revenues will be required just to make up the annual deficit in Medicare. By 2050, when today's teenagers reach retirement age, Medicare's annual deficit will require one of every three income tax dollars collected. Adding a drug benefit to Medicare would be like throwing gasoline on a fire as far as fiscal responsibility is concerned. Drug costs are growing faster than other health-care costs, and they will continue to do so for the foreseeable future. Medicare currently pays only 5% of the cost of prescription drugs used by Medicare beneficiaries. Proposals to add a comprehensive prescription drug benefit to the program could shift as much as two-thirds of senior drug costs to Medicare. The impact on the future of Medicare will be devastating. Republicans in the House have already passed their prescription drug benefit proposal. Assuming all seniors participate, the likely result of this proposal is that Medicare will pay for a little more than one-fourth of their drug costs. Another Texas A&M economist, Andrew Rettenmaier, estimates that the GOP drug benefit will raise Medicare's claim on other revenue to more than one-fourth of income taxes by 2030 and 40% by 2050. When Social Security is included, more than half of all income tax revenues will be needed just to pay senior benefits by mid-century. *** Naturally, congressional Democrats regard this proposal as much too stingy. Assuming all seniors participate, the likely result of the House Democrats' proposal is that Medicare will pay for about two-thirds of elderly drug costs. Under this plan, Mr. Rettenmaier estimates, Medicare's deficit will rise to more than one-third of income taxes by 2030, and to more than 50% by 2050. In a study for the National Center for Policy Analysis, Milliman & Robertson, a leading health-care actuarial firm, estimated that if the average Medicare expenditure were combined with the average Medigap premium and paid to a single plan, there is enough money to enroll seniors in the same type of health plans other Americans have. In other words, we do not need more money to pay for prescription drug coverage in the system. We just need to spend it more wisely. Mr. Goodman is president of the National Center for Policy Analysis. FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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![[Chart]](bust.h1.gif)
Even
without a prescription drug benefit, the future of Medicare looks bleak.
In general, anyone who has worked at least 10 years has already earned the
right to receive future Medicare benefits, even though no funds have been
set aside to pay those benefits. Tom Saving, a Medicare trustee and
director of the Private Enterprise Research Center at Texas A&M
University, estimates that current accrued liability under Medicare is
almost $17 trillion. This is more than five times the level of the
official national debt.