A person who was unhappy with the outcome of the election
suggested that the voters gave President Obama a “Mulligan” on election day – a
second chance to do things right. That’s
one way to look at it.
But if you belief that, then you also have to say the same
thing about the divided Congress – it, too, was being given at least one more
chance to get things right.
That means agreeing
to the surprisingly little compromise on which the future of Medicare will
depend.
It’s hard to understand how two sides looking at the same
reality and sharing the same goals could be so far apart in coming to an
agreement about what to do. Nowhere is
this more evident than in the Medicare program debate.
Both sides acknowledge that Medicare is as popular as any
entitlement, is as well run as any health insurance program, and addresses a need
that is only going to grow in the coming years.
They also agree on certain facts. The first is that Medicare hasn’t yet contributed
to our debt. The second is that it won’t
for at least another 12 years, because there are enough reserves in the
Medicare Trust Fund to offset any program deficits for that long. The third is that the size of the program deficit
last year was $19 billion.
They also agree that on its present course, Medicare will eventually
become too expensive to maintain.
There are two down-the-road
problems with the Medicare program.
The first is related to Medicare and healthcare
inflation. On its current inflationary
trajectory the cost of Medicare will grow as the cost of healthcare in general
grows. Medicare alone will consume 6% of
our GDP by the time today’s young adults become Medicare-eligible, and up to 7%
of our GDP by the time babies being born today become Medicare-eligible.
The second is related to the current $19 billion Medicare deficit. If this deficit isn’t closed, then it will
grow over time, wipe out the Trust Fund, and undermine the entire Medicare
program.
We need Congressional action to address both of these
problems.
Congress has already
taken some actions to address the first problem – the long-term inflationary
growth in the Medicare program.
The
$716 billion in rate cuts included in the Affordable Care Act reduced Medicare’s
long-term projected share of GDP from 10% to 7%. This is a significant difference,
accomplished without cutting a single benefit because the time horizon is so
long.
If that were all we needed, Congress could recess before it
even convenes.
But $716 billion isn’t enough to prevent the Medicare share
of GDP from growing from 4% today to 6% twenty-five years from now. And one part of that cut – an immediate 30%
reduction in some provider rates – will likely be “fixed” at least in part by
the new Congress as it has every year since 2002.
So we need another strategy, one that involves compromise.
And the beginning of
that compromise could be in two small steps that Congress and the President might
take to address the second problem – closing the $19 billion deficit today.
One step involves taxes and the other step involves spending.
In 2011, according to the Medicare Trustees 2012 Annual Report, Medicare revenues were $530 billion and Medicare expenses were $549
billion. If that gap were closed moving forward, then the Medicare Trust Fund would
remain solvent. And the Medicare program
would be secure no matter what Medicare's share of future GDP is.
Closing a $19 billion gap in a $549 billion program shouldn’t
be an insurmountable problem for governmental leaders. It shouldn’t demand much political
posturing. And it doesn’t require a “grand
bargain.”
If it were to be done just through a Medicare tax increase,
it would cost every Medicare taxpayer (typically under the age of 65) an
average of less than $10 per month.
If it were to be done just through a reduction in Medicare benefits,
it would cost each Medicare beneficiary (typically over the age of 65) just
over $30 per month.
What if we all shared the burden together? That might mean an average $7 per month tax
increase and an average $10 per month benefit reduction.
The American people might well agree to such a Medicare bargain. And be thankful for the compromise.
Happy Thanksgiving!
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