The Myth of Medicare's Excellence, and How to Fix It
As the population ages and risk factors like obesity continue to compound, Americans will increasingly require medical care at an unprecedented level. Among Democratic candidates for president, Sen. Bernie Sanders espouses “Medicare-for-all,” and Secretary Hillary Clinton fights against private options for seniors, while Republican candidate positions remain vague. Clearly, the future of Medicare demands a fact-based discussion.
After decades of patchwork coverage additions, today’s Medicare is highly fragmented and significantly flawed. Although initiated to protect seniors from financial ruin, traditional Medicare does not include catastrophic insurance. In addition to indecipherable complexity, administrators process 4.9 million claims each day. Unsurprisingly, Medicare is fraught with errors, fraud, and waste, estimated at $60 billion in 2014.
Medicare is also in serious financial trouble. Nearly four million Americans reach age 65 annually; by 2050, that population will reach 83.7 million, almost doubling from 2012. Health expenses for a 65-year-old will triple by 2030. Meanwhile, the taxpayer base financing the program has shrunk to half of what it was at Medicare’s inception. Medicare Trustees estimate that the Hospitalization Insurance fund will be depleted in 2030.
Despite expanding needs, access to care through Medicare is diminishing. Counter to the narrative demonizing private insurers, Medicare already ranks higher than nearly all comparison private insurers every year for claim refusal rates. More than half of doctors refuse new Medicare patients or plan to do so; obstacles to care will accelerate.
To fix Medicare and prevent the collapse of this crucial safety net, we need to empower seniors to seek and receive value.
First, Medicare should integrate coverage through competition-based private insurance. Indeed, seniors themselves have chosen private insurance as their fix for Medicare. More than 70% already purchase private insurance to supplement or replace traditional Medicare. Medicare would pay for the private plan of an enrollee's choice, calculated from averaging the three lowest-priced competing plans. If one chooses a plan with a premium lower than the benchmark, a rebate would be transferred into that individual’s health savings account; if the chosen plan costs more than the benchmark, the enrollee would be responsible. This would save more than the $15 billion per year the CBO estimates based on higher benchmarks. For those over age 35 today, traditional Medicare would remain an option.
Second, Medicare should provide broadly expanded HSAs, instead of excluding seniors from these powerful tools. Seniors now live 25 percent longer after age 65 than in 1972 with a life expectancy of about 85, so they need to save for decades of health care. HSAs, especially with high-deductible coverage, reduce costs significantly without harming the chronically ill. Additionally, HSA holders participate more frequently in wellness programs that improve chronic diseases and save money.
Regardless of specific insurance deductible, all Medicare enrollees would automatically own HSAs with far higher contribution limits and liberalized uses, including non-prescription medications and home health devices. Even if Social Security benefits have begun, seniors, their families, and employers could still fund their HSAs. Balances could be rolled over to HSAs of surviving family members.
Third, Medicare eligibility should reflect today’s demographics. Life expectancy from age 65 has increased five years since program inception, and retirement age has increased five years since the early 1990s. Eligibility age should slowly increase by two months per year until age 70, saving $65 billion over the decade by CBO estimates.
Modernized Medicare will jettison obsolete fragmented coverage and let beneficiaries choose more comprehensive or lower-cost plans. Counterproductive Medicare assignment rules will be abolished, and the growing problem of finding doctors who accept Medicare will disappear. Beneficiaries will receive better benefits at lower cost, and Medicare will be strengthened for generations to come. And by leveraging the market power of its highest-spending consumers, these reforms will generate massive savings system-wide.