July 29, 2015
July 30 marks 50 years since President Lyndon B. Johnson signed Medicare into law. The only birthday gift this middle-age government program merits is a reality check.
Health insurance for senior citizens was part of LBJ’s expansion of the welfare state, all in the service of establishing a “Great Society.” Yet many beneficiaries today are struggling to secure access to high-quality care. Future beneficiaries, meanwhile, are forking over billions of dollars today to keep a program afloat that may be bankrupt when they retire—unless fundamental reforms are enacted.
Johnson had high hopes for Medicare. It grew, he said, from the “seeds of compassion and duty which have today flowered into care for the sick.” At the time, many people over 65 were unable to afford private health insurance. The president believed the new program would provide affordable, sustainable health care.
But Medicare spending has zoomed far beyond original expectations and is now anything but sustainable. In its first year, 1966, Medicare spent $3 billion. In 1967 the House Ways and Means Committee predicted that the program would cost $12 billion by 1990. It ended up costing $110 billion that year. Last year the program cost $511 billion, and seven years from now it will double to more than $1 trillion, according to the Kaiser Family Foundation. The latest projections from Medicare’s trustees, released this month, project that the program’s main trust fund, for hospital care, will be exhausted by 2030.
Medicare has been dogged by fraud and other improper payments—$60 billion overall in fiscal 2014, according to a recent report by the Government Accountability Office.
To keep Medicare spending under control, payments to health-care providers by the program have consistently lagged behind those made by private insurers. The American Hospital Association reports that hospitals took in 88 cents of every dollar spent caring for Medicare beneficiaries in 2013.
As a result nearly three in 10 seniors on Medicare struggle to find a primary-care doctor who will treat them, according to the Medicare Payment Advisory Commission. Another survey conducted by Jackson Healthcare, the health-care staffing company, found that 10% of the more than 2,000 physicians it surveyed don’t see Medicare patients at all.
The Medicare Access and CHIP Reauthorization Act, passed in April, committed to pay increases of 0.5% a year for the next five years. This may coax some doctors into treating more Medicare beneficiaries. But access problems will surface again in 2019 when reimbursements plateau.
Congress can fix the program, starting with the age when Americans can enter Medicare. In 1965 eligibility for Medicare was set at age 65, which was reasonable enough, since life expectancy was 70. Today life expectancy is 79, and could reach 84 by 2050. We should be thrilled that people are living longer. But those extra years put additional strain on our health-care system. Raising the eligibility age to 67 will moderate the growth of Medicare spending.
The number of Medicare beneficiaries has also skyrocketed since the program’s inception. It initially served 19 million people. Today the program serves almost 50 million beneficiaries—and every day 10,000 baby boomers join the program’s ranks, as reported by the Pew Research Center. According to a report by the Congressional Budget Office, raising the eligibility age by just two years would save $19.1 billion by 2023.
But tweaking the eligibility age won’t be enough. If Medicare is to survive into old age, the program has to be converted from an open-ended entitlement to a system of means-tested vouchers.
Under such a system, the government would give every senior a voucher based on health status, income and age. Seniors in better health and those who are wealthy would receive smaller vouchers. Sicker or needier seniors would receive larger ones.
Seniors would then choose from among privately administered health plans the one that best suited their needs and budget. Insurers would have to compete for beneficiaries’ business, and providers would have to compete to get on the most popular plans. Lower prices and better-quality care would be the result.
The way to honor Medicare on its 50th birthday is to fix what ails it. Without timely intervention, the program’s condition will only worsen.
This article originally appeared in the Wall Street Journal.