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Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.
Medicare rules and private insurance plans can affect people differently depending on where they live. To make sure the answers here are as accurate as possible, Phil is working with the State Health Insurance Assistance Program (SHIP). It is funded by the government but is otherwise independent and trains volunteers to provide consumer Medicare counseling in state and local offices around the country. The non-profit Medicare Rights Center is also providing on-going help.
Moeller is a research fellow at the Center on Aging & Work at Boston College and co-author of “How to Live to 100.” Follow him on Twitter @PhilMoeller or e-mail him at firstname.lastname@example.org.
The Entitlement Wars are coming. Make no mistake. The attacks may be about Social Security, Medicare, Medicaid, or the Affordable Care Act – the newest member of what some conservatives see as the Four Horseman of the Financial Apocalypse. Or they could emerge from the growing skirmishes over whether income inequality is getting worse. The tax code could enter the picture. So might the national impasse over what to do about immigration.
Any or all of these roads could lead to a reckoning about how much deficit spending the nation can continue to afford, and who’s going to pay the price for a belt-tightening that is decades overdue. Here’s a primer to help better understand some of the issues, including a little tough love about the role that Medicare beneficiaries play in the nation’s expanding entitlement deficits.
Social Security’s Disability Trust Fund is set to run out of money next year, not in some distant future toward which we can kick the can yet again. If you are into political masochism, check out the Senate Budget Committee’s recent hearing on this issue should you harbor any illusions about a happy ending to this story.
More immediately, and more on point for folks concerned about Medicare, the annual dispute over what to pay participating doctors is coming to yet another moment of truth in less than two weeks. In 1997, Congress enacted a law that included an annual review of Medicare rates to doctors under a program called the Sustainable Growth Rate (SGR).
Over the intervening years, the law regularly has mandated sizable cuts in physician payments. And on 17 occasions, Congress has overridden these cuts. Each year it has done so, the ultimate cost of a permanent solution – “the doc fix” – has risen. If this year’s April 1 deadline for dealing with the problem is not met, doctor rates would be cut by 21 percent.
It remains to be seen whether this would lead to a wholesale exodus of physicians from Medicare, as many doctors’ groups and others warn. No one has expressed enthusiasm for finding out. Surprisingly, members of both parties in the new Congress have shown little interest in an 18th short-term fix. Instead, in an unusual display of bipartisanship, Congress reportedly is nearing agreement on a permanent fix with a $200 billion price tag over 10 years. Or, if time runs out, another one-year patch may yet be all that can get done.
Most of the projected costs of the fix during the next 10 years would be paid by Medicare and thus add to federal budget deficits. But news reports emphasize that further-out savings will be touted as a way of getting deficit hawks to support the measure. But one way or another – either as taxpayers or Medicare beneficiaries – these costs will get passed on to us.
Wealthier Medicare beneficiaries seem likely to face more means testing to help pay for some of the fix. They already pay higher premiums for Medicare Part B coverage (for physician and outpatient expenses) as well as higher Part A (hospital) payroll taxes under provisions of the Affordable Care Act.
Medical providers will face additional carrot-and-stick incentives to move from fee-for-service (quantity) health care models to patient-outcome (quality) metrics. If their expenses rise, of course, a good chunk of any increases will get passed on to Medicare users.
Any efforts to reduce Medicare benefits or pass more costs to beneficiaries are a rallying cry for seniors’ groups. I get that. But at the risk of upsetting older Americans and their advocates, it’s far past time for all of us to get an accurate handle on the financial realities of who pays for Medicare and other key senior benefits.
American workers have payroll taxes deducted from their wages for Social Security and Medicare. The Social Security tax in 2015 is 12.4 percent on wages up to $118,500 – half paid by employees and half by employers. The Medicare tax is 2.9 percent on all wages, as there is no cap. Again, employees and employers each pay half of this tax.
Overwhelmingly, people believe their Social Security benefits are totally funded by payroll taxes. They are correct.
They also believe (see question 37 in this recent poll) that their Medicare benefits are not subsidized by the government. They are way, way off base here.
The Hospital Insurance (HI) fund does pay for Part A Medicare expenses, and its solvency has been extended out to 2030 because of cost-savings from the Affordable Care Act. So, if you believe you’ve paid for Part A Medicare services, you’re correct.
But there are no payroll taxes to cover Part B, Part C (Medicare Advantage) and Part D (prescription drugs) expenses. True, we do pay premiums for these services. But they fall far, far short of covering program costs, and the difference comes directly from Uncle Sam.
According to the 2014 Medicare Trustees’ Report, these premiums totaled $73 billion in 2013. While that’s hardly chump change, total Medicare outlays for these programs were $316.8 billion. Nearly all of the difference, or more than $236 billion, came from general government revenues. By law, in fact, Medicare Part B premiums need cover only 25 percent of projected Part B expenses.
Eugene Steuerle, a tax and fiscal expert at the non-profit Urban Institute in Washington, DC, has developed detailed estimates of how Americans’ Social Security and Medicare benefits compare with their contributions into these programs. His work provides little cover for people who insist on saying seniors pay their own way when it comes to entitlements.
This doesn’t mean that entitlements should be cut. But it does mean we at least should support these programs using factually correct arguments.
The rallying cry for Social Security is one that I support: “These are your benefits. You paid for them.” I can’t support using the same rallying cry for Medicare benefits.
Phil Moeller is the author of “Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs” and the co-author of the updated edition of The New York Times bestseller “How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security,” with Making Sen$e’s Paul Solman and Larry Kotlikoff. On Twitter @PhilMoeller or via e-mail: email@example.com.
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