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| EXPANDING MEDICARE
The Pros and Cons of Increasing Medicare Eligibility January 16, 1998 |
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Questions asked
in this forum:
Is the Medicare proposal a federal government power grab? If the proposal is "revenue neutral", why not expand Medicare? Is there the political will to increase premiums if health care costs continue to rise? Who can afford $3600 to $4000 a year for Medicare? How will this proposal impact health care generally? Will this allow business to start reducing its health coverage? James M. Williams from Onancock, VA asks: Help me understand how Clinton can bring a whole new group of people into medicare without raising taxes. The claim is that by charging those 50 to 65 $300 to $400 a month the program will be "revenue neutral." That's hard to believe when private insurance companies have to charge much more for the same coverage! This whole thing looks like another government power grab where they promise what they can't deliver, but once they have you, you can't get out. Please Comment.
Joseph White responds:
When the administration estimates what it would cost to provide the new coverage, they look at what Medicare costs the government, not what private insurers charge. I doubt there is any good data on private charges within this age group, because so many of the covered individuals in fact are part of larger group contracts. But there is, of course, good data on what Medicare costs now. I assume you are comparing to the costs of individually-sold coverage in your local area. So the question is really why the administration's estimate based on Medicare experience could be much lower than individual premiums in your area.
There are a lot of reasons why you might see larger premiums than the administration is estimating. One possibility is that your area is more expensive than the national average. By charging a rate that is based on national experience, the Medicare offer will look like a better deal in more expensive places, and a worse deal in less expensive ones. Unfortunately I don't know where Onancock is, but if it's anywhere in the D.C. exurbs, it probably has higher than average costs.
A more fundamental reason is that the marketing and administrative costs of individually-sold insurance are extremely high. In the private market, premiums for individuals are forty percent higher than premiums for insurance sold to large employers (e.g. 1000 employees or more). Medicare's administrative costs, of course, are lower than any private insurers, since Medicare does not have the same marketing expenses, and it does not do underwriting (that is, assessing the potential risk of customers so as to decide what premiums to charge). So for this reason alone it should be much cheaper than individually-sold insurance.
Another reason is that the Medicare benefits package actually isn't very good, compared to the average private sector package. For instance, there is no prescription drug benefit, and there is no cap on beneficiaries' total out-of-pocket costs. You can even run out of hospital benefits. So you may be looking at policies that cost more because they provide somewhat more.
The final reason is, they get the "revenue neutrality" in part by proposing that the people who enter the program early also pay higher Part B premiums than everyone else later. So in essence they will pay some of the costs of the earlier coverage later.
If you don't trust the administration's estimates, you can be reassured by knowing that the Congressional Budget Office also will make its own estimates. And Congress, in its internal procedures, will follow the CBO's estimates. So, while nobody ever knows the costs of anything that hasn't happened yet, the premiums if this proposal were ever adopted are likely to be pretty close to costs.
The National Taxpayers Union responds:
Your suspicion that this program may be another government power grab may be well-founded. By proposing to expand the program, perhaps the White House is hoping to created new constituents for Medicare and thereby delay debate on reforms that can reduce health costs while preserving patient choice.
Furthermore, Medicare Part B, though not financed the same way, still presents daunting fiscal challenges, since the "premiums" the beneficiaries pay only about 1/4 of the program's actual costs. The difference is made up by a general taxpayer subsidy. This again has allowed policy makers to expand government's role in health care while maintaining the fiction that it is merely "providing insurance at cost." Medicare's own Trustees predict that Part B expenditures will more than double as a percent of the economy by 2020.
These developments will mean huge deficits, higher taxes, or drastic spending cuts in other programs int he coming years. To borrow your words, government officials have already "promised what they can't deliver" to millions of Medicare beneficiaries and the nation's 120 million taxpayers. Now, they are making the same hollow, unsustainable promise to a new sector of American society.
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