How can medicare be fixed

But lifting it—which would unleash a gusher of cash into the Trust Fund? Its hospital insurance fund—which covers inpatient hospital care, skilled nursing facility care, home healthcare, and hospice care—will run out in Meanwhile, some lawmakers continue to act like money grows on trees. I wrote earlier this week that Democrats want to add vision, hearing and dental benefits to Medicare.

These are needed benefits obviously, but who pays? One powerful Democrat, Vermont Sen. Bernie Sanders, wants it even lower: age And what about Medicaid—the state and federal program that provides health coverage for some 79 million low-income and disabled Americans?

There have been some calls to cut Medicaid spending, in fact—right when millions need it most. These are your entitlements. Politicians know what the honest answer is: pain will have to be inflicted on taxpayers. Higher taxes or reduced benefits or both? Unlike other parts of Medicare, Part A is funded mainly through the Medicare payroll tax; parts B and D are financed through a combination of general government revenue and enrollee premiums.

The Medicare trustees projected last year that the Hospital Insurance Trust Fund will become insolvent in - less than three years from now. Just last week, the Congressional Budget Office CBO forecast a somewhat longer insolvency date due to an improving economic outlook - But we will have to wait and see what the Medicare trustees have to say a bit later this year. Shortfalls are nothing new for Medicare Part A - they generally are the result of rising healthcare costs. But this is only the second time insolvency has been predicted within five years.

The financial cliff has drawn closer due to declining payroll tax receipts during the economic downturn. What to do about the problem? From to , for instance, the trustees expect expenditures to grow about 10 percentage points faster than income. Given that painful policy changes of this sort are usually implemented on some delay, these numbers would likely be larger in magnitude in a more realistic scenario.

Medicare's trust fund for Supplementary Medical Insurance SMI , which is used to pay for care in a physician's office and for retail prescription drugs, doesn't face the same problem. Statutorily, the SMI trust fund is required to balance each year, with a portion coming from premiums and the rest from general revenue. Future growth in spending, however, will require increases in general revenue devoted to the SMI trust fund, as well as increases in beneficiary premiums. In , for instance, revenue devoted to the SMI trust fund accounted for about This is driven mainly by the trustees' assumption that, again, expenditures will grow faster than the revenue base.

The point is simple: Without changes that either reduce cost growth or increase revenues, under current law, one major part of Medicare will be unable to pay out the benefits that it is expected to owe in the near future, and the other major part of Medicare will eat up an ever-larger share of general federal revenues.

This means that, without far more deficit spending, a growing share of general tax revenue will be unavailable for other federal government priorities.

Reform that delivers better value to beneficiaries isn't necessarily urgent. Certainly there aren't any particular deadlines for such changes. However, Medicare's role as one of the largest health-care purchasers in the country means that the way the program functions has a disproportionately large effect on health-care markets more broadly. For instance, many insurers base reimbursements to physicians and hospitals on Medicare's payment schedule, often paying some multiple of Medicare payments.

Medicare's prohibition on refusing coverage for therapies on the basis of cost effectiveness similarly bleeds into the rest of the health-insurance system, encouraging coverage of an unnecessarily broad range of drugs and procedures in the private insurance market. Politically speaking, reforms that both reduce costs and improve value for beneficiaries are also those most likely to draw support from across the political spectrum. This means that comprehensive reform of the program will have to carefully address both challenges.

There is actually no shortage of reforms that are both politically feasible and could hit the dual targets of improved value and lower costs. These include everything from changing Medicare's benefit design to more accurately model modern-day private insurance, to extending mandatory rebates for certain drugs to Medicare patients. One idea in particular — commonly known as premium support or competitive bidding — has the potential to more radically change the structure of the Medicare program to improve its effectiveness and reduce its costs while still providing the benefit it now does to seniors.

And this would not be a new idea in Medicare — it is key to how Medicare Advantage works today. As noted earlier, individuals who become eligible for Medicare can opt to receive their benefits through a private insurance plan instead of the government-run program.

That roughly one-third of beneficiaries receive coverage through a private plan is itself a testament to the popularity of these plans. An enrollee who chooses private coverage may pay an additional premium on top of the premium for traditional Medicare, or may have to pay no additional premium, depending on the plan he chooses.

And MA plans typically also offer retail prescription-drug coverage for an additional premium as well. Contrary to traditional Medicare, MA plans are permitted to use a variety of utilization-management strategies. For instance, most plans have provider networks that restrict which hospitals and physicians enrollees can use. Plans also typically have different benefit structures that look more like those in the private insurance market, with co-pays and co-insurance that can vary for different services.

Out-of-pocket costs for beneficiaries are also required to be capped for each MA plan. The methods used to calculate plan payments have changed significantly over time. Indeed, actual bidding, at the county level, was only introduced in Prior to that, plan payments were typically either paid at the rates of traditional Medicare or slightly below , given "floor payments" that would guarantee at least a certain level of payment, or in some years simply received a fixed increase in payments.

While a crude risk-adjustment mechanism was used initially, this accounted only for enrollee demographics. Since , MA payments have become increasingly adjusted for enrollee health status to discourage plans from selecting only healthy enrollees. Today, MA plans submit bids based on the expected cost of covering an average Medicare beneficiary. This bid is then adjusted for enrollee demographics and risk score a measure used by the Centers for Medicare and Medicaid Services to quantify how sick an individual is and is compared to a statutorily determined benchmark.

Prior to the Affordable Care Act, these benchmarks typically grew every year at a fixed rate, which often resulted in benchmarks coming in significantly higher than traditional Medicare costs. Under the ACA, however, county-level benchmarks are calculated based on where the county ranks in terms of its traditional Medicare costs. Plans that bid above the benchmark are required to charge beneficiaries a premium equal to the difference between the benchmark and the bid.

Plans bidding below this benchmark cost nothing extra for beneficiaries and receive a rebate based on the difference between the benchmark and their bid. This rebate must be used to offer supplemental benefits, to reduce the beneficiary's Part B or Part D premiums, or to reduce premiums for supplemental benefits. Understanding the deficiency of this system is critical to understanding how a relatively straightforward reform could result in a substantial improvement.

A major flaw one might spot immediately is that the bidding system does not fully hold high-cost plans accountable for higher-than-average bids. Indeed, the fact that benchmarks are established based on administrative calculations discourages true competition among plans. Because lower- or higher-than-average bids do not affect benchmarks, plans face less incentive to bid competitively.

This is likely one reason that, prior to Obamacare, MA benchmarks were routinely greater than traditional Medicare costs. Another flaw, which may be less apparent, involves the dynamics of decisions faced by Medicare beneficiaries. Around a third of people between 65 and 84 years of age have at least two to three chronic medical conditions.

A little less than a quarter of them will have four to five. More people living longer means more medical problems and higher healthcare spending. As the number of chronic medical conditions goes up, the Centers for Medicare and Medicaid Services CMS reports higher utilization of medical resources, including emergency room visits, home health visits, inpatient hospitalizations, hospital readmissions, and post-acute care services like rehabilitation and physical therapy.

That number is expected to increase by 5. Medicare beneficiaries have high out of pocket costs too. Taken together, these factors could deplete the Medicare Trust Fund at a rate not matching the dollars coming in. Unemployment rates increased dramatically during the pandemic with job losses into the millions. This decreased direct financing for the Medicare Trust Fund through payroll taxes, at least for the short term. With these costs in mind, updated projections have been made about the solvency for Medicare.

David J. The Committee for a Responsible Federal Budget is somewhat more optimistic with expected solvency through or Whether the pandemic has affected Medicare's solvency will be more formally addressed in that report.

Bankruptcy is a legal process that declares a person, business, or organization unable to pay their debts. Medicare is not going bankrupt. It will have money to pay for health care. Instead, it is projected to become insolvent. Insolvency can sometimes lead to bankruptcy but in the case of Medicare, Congress is likely to intervene and acquire the necessary funding.

If Medicare is going to care for American seniors over the long run, something is going to have to change. Ideas on how to accomplish this have been controversial and have included the following:. The problem with many of these proposals is that they shift more of the costs onto seniors who are already living on a fixed income. As it stands, Social Security benefits have been flat. With marginal increases in the Cost of Living Allowance COLA the past several years, seniors are already forced to stretch their dollars.

Elderly Americans are at highest risk for having decreased access to health care when they need it most. With an aging baby boomer population, Medicare is at risk for insolvency by or even sooner. Specifically, hospital and hospice benefits are at risk. If we continue down the current path, beneficiaries could face an increase in out of pocket costs. Policy changes are needed to protect Medicare and to those who need it.