Get Medicare Out of the Debt Debate

The U.S. debt debate is heating up as Congress and the President argue about the “cut, cap, and balance” plan and move closer to the August 2^nd deadline to raise the debt ceiling.

The debt debate is important.  Our U.S. debt is now over $14 trillion, and we need to do something about it.  But Medicare cuts are on the table, and war spending is not.

So I would like to propose a switch.  Take Medicare cuts off the table, and put war cuts on it.

The wars in Afghanistan and Iraq have cost this country over $1.2 trillion since 2001.  The debt ceiling wouldn’t even be an issue if it weren’t for these, because we never paid for them.  We got the two men we wanted.  It’s time to pay the bill and get out.

On the other hand, the 2011 summary of the annual report of the Medicare Trust Fund trustees shows that we still have surpluses in the Medicare Trust Funds.  The Medicare Part A Trust Fund had $271.9 billion in it in 2010.  The Part B and D Trust Fund had $72.1 billion in it. 

Contrary to what some members of Congress would like us to believe, Medicare isn’t responsible for today’s national debt.

We should be talking about Medicare not because it has contributed to our debt, but because Medicare taxes are not covering the full cost of Medicare today and we’re dipping into the Trust Fund balance.

It won’t take very much to wipe out the Medicare deficit - certainly not as much as the Medicare “sky is falling down” politicians want us to believe. 

The net government outlay for Medicare in 2010 was in the vicinity of $450 billion for a program that covers over 48 million Americans.  Gross spending was about $100 billion higher than that, and included premium payments, co-pays, and costs covered by other non-governmental revenues. 

To pay for this, the Medicare Part A Trust Fund had $215 billion of income in 2010, including interest.  $182 billion came from dedicated Medicare taxes.  The Medicare Part B and D Trust Fund had $212 billion of total income, about $205 million of which was general tax revenues.

Those reflect a shortfall in Medicare tax revenues, which are supposed to cover the cost of the program.   The shortfall for this year isn’t insignificant.  It is projected to be $34 billion in the Medicare Part A Trust Fund, and that will have to come from the Trust Fund balance.

However, this short-term problem was almost completely solved by the passage of the Affordable Care Act, which includes a .9% Medicare tax increase for high wage earners beginning in three years.  Because of the ACA, even if Congress does nothing more to address the Medicare shortfall, it will go down to only $6 billion, or 1.8%, by 2016.

But that’s not good enough for the trustees, who also look at the problem from a long term perspective.  Today’s negative numbers will add up before then, wiping out almost half of today’s $270 billion balance in the next five years.

Looking 75 years down the road, the trustees identified another problem.  They calculated the current Medicare cost to be 3.76% of taxable payroll, and project that it will grow to 4.9% of taxable payroll in 2085. The current Medicare tax rate, however, is only 2.9% of taxable payroll.

So, now we know what it would take to close the long-term Medicare shortfall using tax revenues alone – a 2% increase in the Medicare tax rate.  Half of this would be paid by individual taxpayers and half by their employers.

This would cost the average American making $45,000 per year less than $38 per month.  It would preserve Medicare as we know it today for him, his children, his grandchildren, and probably even his great-grandchildren.

That’s it.  If we did this, we wouldn’t need to embrace any of the bad ideas floating around Congress today, such as privatizing Medicare, creating Medicare vouchers, further limiting or eliminating the prescription drug benefit, forcing beneficiaries into HMOs, or raising the age of eligibility.

But if we were to do anything positive to contain costs in the next seventy-five years, such as keeping our population healthier or finding cures for any of our major chronic diseases, it would take even less to guarantee every American low-cost health insurance in retirement. 

Think we can’t afford this?  The average monthly cost per Medicare taxpayer for the two wars for the last ten years has been around $63 per month.  Before continuing the cold war on Medicare, we should stop throwing away money on the hot ones.

If you have questions about this column or wish to be added to an email list letting you know when new Our Health Policy Matters columns are published, please email gionfriddopaul@gmail.com.