On January 1, Kathleen Casey-Kirschling became the first of the baby-boom generation to qualify for Medicare. She’s hardly alone: the baby-boom generation will cause enrollment in Medicare to soar. According to the Kaiser Family Foundation, Medicare enrollment will increase from 47 million today to 64 million in 2020 to 80 million people by 2030. At the same time, the ratio of workers paying into the program to support each Medicare enrollee will drop from 3.4 (2010) to 2.8 (2020) and then to 2.3 workers per beneficiary in 2030, denying the program the tax revenue needed to sustain it.
What happens then? Well, the President and Congress would have a dismal menu of political and policy choices. They could impose huge tax increases, inflicting great harm on working families and the economy, and they probably couldn’t raise enough money anyway from taxes without other changes in the program.
They could slash benefits for everyone enrolled in Medicare, impose means-testing so only low-income elderly would qualify, increase beneficiaries’ out-of-pocket contributions, limit access to beneficial services (rationing, anyone?), cut how much Medicare pays doctors and hospitals, and/or privatize the program (but if you are over 65 and have chronic health conditions, good luck finding affordable private health insurance).
They could try to duck such tough choices by borrowing more money to pay for the program, further driving up the federal deficit and debt, crowding out spending for other national priorities, increasing interest rates, slowing or even reversing economic growth and reducing national and household wealth.
One could imagine such a draconian set of policy choices creating unprecedented intergenerational conflict, as baby-boomers resist giving up the benefits they’ve “earned” and are “entitled” to while their children and grandchildren resist seeing their standards of living cut to pay for their parents and grandparents benefits.
It’s enough to give you a headache, just like recovering the day after a New Year’s Eve binge.
It doesn’t have to be this way, though. There isn’t much that can be done about the demographic fact that there will be more old people (let’s hope not, at least!) and fewer younger ones. There isn’t much to be done about the fact that as people age, they will need health care that costs more than most can afford on their own, so someone else younger and healthier will have to help pay for their care.
But there is a lot that could be done now to put Medicare on a more sustainable path, starting with ending the myth that the amount each of us pays into Medicare over our lifetimes covers the cost of our benefits. It doesn’t: Medicare has, and always will be, an income transfer program from working people to non-working (retired) people receiving benefits. Yet a new poll shows that 60% of us believe that “they paid into the system so they deserve their full benefits -- no cuts” according to the Associated Press. But the same AP story notes that new research by the Urban Institute shows that the cost of the benefits that most receive from Medicare greatly exceeds how much they paid into it: “Consider an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services -- from prescriptions to hospital care -- worth $355,000, or about three times what they put in.”
As long as people believe (and are told by politicians) that they “paid” for their own Medicare benefits, they will understandably resist having “their” benefits reduced.
Congress and President Obama could begin changing such perceptions by explaining the demographic facts of life about Medicare. They could also begin proposing ways so that Medicare is restructured more gradually and less painfully, rather than waiting 10 or 20 years when all of the options will be bad ones, politically and substantively. They might even find that the public is willing to listen.
The AP’s poll shows some ideas for changing Medicare could potentially have support if the alternative is to slash benefits: “59% of [boomers] said raise the age and keep the benefits . . 61 percent of [all] Americans favored raising Medicare taxes to avoid a cut in benefits. . . Among adults in their 20s, who'd face a whole career paying higher taxes, 61 percent said they would be willing to pay more to preserve benefits [and] 62 percent . . . said they'd be willing to pay more so that doctors' fees don't have to be cut and more doctors keep accepting Medicare payments.”
For the country to make any progress on sustaining Medicare, though, both political parties need to set aside ideological and partisan arguments that don’t hold water. For Republicans, this means being willing to accept that some gradual and broad-based tax increases are going to be part of the solution, that government is going to continue to have the principal role in financing health coverage to the elderly because for-profit private insurance has no economic incentive to cover older and sicker people, and by accepting that it makes no fiscal or budget sense to repeal the provisions of the Affordable Care Act that offer the greatest potential of slowing spending on Medicare (like funding on comparative effectiveness research, investments in primary care, and pilot-testing new ways to pay physicians and hospitals). For congressional Democrats and President Obama, it means accepting that reform is going to involve changes in benefits, cost-sharing, and eligibility, and a willingness to be open to Republican ideas for reducing costs, like medical liability reforms to reduce the costs of defensive medicine, health savings accounts, and pilot-testing a voluntary premium support (voucher) alternative to traditional Medicare.
Having such a bipartisan discussion about the future of Medicare seems unlikely, but wouldn’t it be a terrific new year’s resolution for the politicians to give it a try?
Today’s question: Do you think that the country is ready for a bipartisan (or better yet, non-partisan) discussion over how to sustain Medicare for the baby-boomers, and their children and grand-children?