Social Security, Medicare and Medicaid Reform
Dose of Reality
by Neil Davis
These days we are hearing much about the increasing costs of Social Security, Medicare, and Medicaid, along with various proposals to preserve the long-term viability of these programs. In the case of Social Security, the proposals are either to cut benefits or to increase funding, and those relating to Medicare and Medicaid also include ways to cut programmatic costs without necessarily reducing benefits.
Recall that Social Security relies on dedicated payroll taxes, half coming from employers, and half from employees, each currently paying 6.2 percent of gross wages up to an annual wage limit of $106,800. So far, those taxes usually have more than paid for benefits, and so the excess has gone into a trust fund now worth $2.5 trillion (an amount equaling one-fifth the national debt) that earns additional income from government-issued bonds. However, the benefits are starting to exceed the payroll tax and bond income, and so current projections estimate the trust fund will be exhausted in about thirty years. Then, if no programmatic changes are made, benefits will have to drop to about 80 percent of current levels if Social Security is to remain viable. So much for the scare claims that Social Security is going broke, but some changes are in order.
Part of the problem is that about 30 percent of wage earners, the employees of state and local government, have opted out of Social Security, much to their own detriment and that of Social Security. It seems to me that the obvious fix to the Social Security program is to eliminate the $106,800 limit on annual wages and to require that all new state and local government workers participate in Social Security. Just these two steps would take care of most or all the long-term funding problem. Nobody gets hurt except the rich, and they can easily afford the minor additional payroll taxation. Conservatives tend to promote privatization of Social Security, but that definitely is not the way to maintain a cost-effective, sustainable program. Every time private industry takes over a government function, cost goes up and program quality declines.
Medicare funding is a bit more complex. The funding for Medicare Part A is, like Social Security, primarily from a dedicated payroll tax shared equally by employers and employees, each paying 1.45 percent of worker gross wages. Unlike Social Security, no limit to the annual wage pertains. Medicare Part B (physician and other services) support comes from the federal general fund overseen by Congress, so that astute body has much to say about the program’s internal workings. Back in 1997, Congress passed an act aimed at keeping Medicare B costs down by establishing a formula for automatically fixing rates by incorporating, among other factors, the change in gross domestic product (GDP) per capita. That action has caused much trouble since, causing subsequent Congresses to override the formula temporarily to avoid unacceptable cuts in Medicare payments to physicians. To avoid a 21-percent reduction this year, Congress did a six-month override, and it will have to do another very soon. This bureaucratic bungling will continue until Congress realizes that it cannot hold down costs by decreeing arbitrary, unsustainable price controls.
A similar attempt at Medicare price control is contained in the new health care reform law. It lops off about a half a percentage point from annual increases in Medicare payment rates to hospitals and other institutional providers of health care. According to Medicare actuaries, if this attempt at control remains in effect, eventually 15 percent of the nation’s hospitals will stop seeing Medicare patients.
One positive effect of the 2010 heath reform concerns Medicare Advantage, a program that allows Medicare beneficiaries to opt for privately operated managed care health plans instead of Medicare A and B. When instituted many years ago, proponents claimed Medicare Advantage would lower costs and improve health care. Not so, unfortunately; under the private plans, health care cost per capita is about 9 to 13 percent higher than under regular Medicare, and there is no evidence that health care is better. Medicare Advantage should have been eliminated entirely under health reform, but the reform only tweaked the program in an attempt to reduce overpayments to the private organizations operating the plans. Part of the reform is to require that at least 85 percent of the federal payments received actually be spent on health care. That is still far below the 97 percent that goes to health care under the regular government-operated Medicare.
Medicaid funding is truly complicated because each state runs its own program, but with more than half of the funding coming from the federal government. In general, the major impact of health care reform on Medicaid is to bring more low-income people into the program. For Alaska, that means an estimated 30,000 persons will be added to the approximately 120,000 currently enrolled. Despite the fact that the federal government will pay up to 90 percent of the additional costs, Alaska’s state government is rebelling at having to pay its minor share. Earlier this year Governor Sean Parnell showed his thinking on this issue, as well as his disregard for the needy, by vetoing a bill overwhelmingly passed by the legislature that would have allowed some 1,300 children and 225 pregnant mothers to receive Medicaid coverage. We can probably expect more of the same from his administration, as the governor is still participating in a lawsuit to try to block health care reform altogether.
It is still not clear what all the impacts of health care reform will be, but we are already seeing one change underway that is being bolstered by the responses of employers and the health care industry. This is the unfortunate shifting of the burden of health care costs onto employees and recipients of health care. Employers are forcing employees to pay an increasing share of health insurance premiums, and the insurance industry is forcing higher co-pays and deductibles. In short, the future does not bode well for those Americans needing the most health care. Too bad the Obama administration was not able to push through meaningful health care reform this past year.
Neil Davis is a retired geophysicist and author of several fiction and nonfiction books. His most recent book is Mired in the Health Care Morass. More on health care issues can be found at his blog, http://healthcaremorass.blogspot.com. Neil can be contacted at neildavs@mosquitonet.com.
The individual mandate—that is, the requirement that each American must carry personal health insurance—currently is the most talked-about component in the 2010 health care reform legislation, and it is the lightning rod attracting almost hysterical attack from the Republicans and other right-wingers. This is a rather humorous situation, since back in the early 1980s it was the Republicans who originally proposed the individual mandate as an alternate to reform promoted by Democrats during the Clinton administration.
The reason why Republicans were promoting the individual mandate was to increase the size of the market for the private health insurance industry. They were afraid that the industry’s ability to turn away sick people would eventually so irritate the public that it would force the adoption of a government-operated single-payer health care system in this country. If that happened it would be the end of the private health insurance industry, and the Republicans did not want that to happen. So for three decades, no one on the right thought to question the constitutionality of the individual mandate.
But then along came Barack Obama with legislation that would no longer allow insurers to reject sick people or cancel the coverage of healthy persons who got sick. The Republicans’ individual mandate idea now had come back to bite them, and it was time to try to kill it by questioning its constitutionality. In part, the ploy was just one gambit to use in the overall battle to make Obama a one-term president—the stated highest priority of the current Republican leadership. That is far more important to them than developing a viable health care system for the country.
It is worth looking at the details of how the individual mandate will operate when it goes fully into effect in 2016, as is dictated by current law. The mandate requires people to buy insurance if they make more than the poverty level (currently $13,530 for a single Alaskan or $27,570 for an Alaska family of four) and can buy a minimally comprehensive policy for not more than 8 percent of their monthly income. In principle, persons not exempt and not buying insurance will be subject to a fine, but it is not clear yet if and how that rule will be enforced, according to Robert Kocher, head of a research group intended to develop fact-based insights on the implications of the new law. (See: http://www.kaiserhealthnews.org/Checking-In-With/kocher.aspx .)
Consequently, says Kocher, 30 million to 40 million Americans will remain uninsured after the law goes fully into effect in 2016. Some will be exempt and others will choose not to buy. That amounts to 10 or more percent of the population, so it’s a far cry from the full coverage of a true universal health care system, and also not much of an improvement over the current situation involving 50 million uninsured Americans.
One rather sad aspect of the current constitutionality controversy over the individual mandate is its apparent political nature and its uneven treatment by the press. We did not hear much from the general press when, during the past few months, fourteen attempts to challenge the mandate’s constitutionality were thrown out of court (according to PBS NewsHour on Dec 20, 2010). Nor was much said when U.S. District Court Judge George Steeh in Michigan ruled that the mandate was constitutional, nor later when Judge Norman Moon of the U. S. District Court for the Western District of Virginia also ruled the same way.
But we certainly have heard a lot about the more recent opposite ruling of Judge Henry Hudson of the U.S. District Court for the Eastern District of Virginia. Maybe it is just that the general press likes controversy, or could it be in part that much of that press is owned by big business? One can also wonder about the impartiality of the three judges mentioned above, considering that the two who decided that the individual mandate was constitutional were Democratic appointees, and the once deciding otherwise was a Republican appointee (Ezra Klein in Washington Post, December 14, 2010).
It probably does not matter much how this issue finally gets settled by the Supreme Court because, either way, the public will eventually rebel against the major cut the insurance industry takes out of the dollars spent on health care. Then some form of government-operated universal health care system will come into being. It is the only way to cut the nation’s expenditure on health care. Nevertheless, the challenge to the individual mandate’s constitutionality is good strategy for the Republicans. It brings public sympathy to their cause, simply because nobody likes the idea of government telling them that they have to buy insurance from private enterprise or any other entity. The beauty of a government-operated single-payer system is that it covers everyone automatically and efficiently, and it can be funded painlessly through taxation according to ability to pay.
*Neil Davis is a retired geophysicist and author of several fiction and nonfiction books. His most recent book is Mired in the Health Care Morass. More on health care issues can be found at his blog, http://healthcaremorass.blogspot.com. Neil can be contacted at neildavs@mosquitonet.com.
