Medicaring and the Great Entitlement Fight

Medicare LogoThe great entitlement fight continues, on ground carefully prepared.  Therefore, some basic information should be inserted before launching yet another discussion.

Reviewing the Obvious

The term “entitlements,” which formerly inferred that the benefits were mandated because the individuals had paid for them (Social Security, Medicare), has been folded back into an argument in which Social Security, Medicare, and public assistance programs are lumped together under the umbrella phrase “welfare.”   In one of the latest iterations conservatives have defended the privatization of the Medicare program as a way to “strengthen welfare for those who need it.” [Ryan, TPM]

This oversimplification comes with some ideological baggage.  Representative Ryan continued: “If I could sum up that disagreement in a couple of sentences, I would say this: Our plan is to give seniors the power to deny business to inefficient providers. Their plan is to give government the power to deny care to seniors,” he said, according to prepared remarks.”  [Ryan, TPM]  While this may sound logical when expressed in highly generalized terms, the practical realities are obviously more complex.

The first practical reality is that Medicare is a single payer health insurance program, the participants in which are all 65 years of age are older.  This translates to health care access for approximately 44.6 million Americans. [HHS] While the Department of Health and Human Services administers the programs, the actual implementation of the insurance services are performed by private firms, the most recent contracts for which were announced in 2009.  [HCF] This insurance program works like all others — the bigger the pool, the more manageable the risk, the more manageable the risk, the more sustainable the policies.

The second practical reality is that it takes two to make a market.  It’s all well and good for Representative Ryan to call for the elderly to “deny their business to inefficient providers,” IF there are providers.  Prior to 1965 approximately 50% of Americans over the age of 65 had either NO medical insurance coverage or had coverage woefully inadequate to meet their needs.  [NCM] T’is an actuarial fact that older people require more medical services, thus the more people in the pool the more sustainable the program.   The hard truth is that the elderly and disabled have no leverage to promote efficient providers or deny custom to inefficient providers IF there are no providers, or very few willing providers,  in the first place.

Broadening the Definition of Welfare

One of the more popular recent arguments for the privatization of the Medicare program is that because the elderly are likely to “take out” of the program more than they paid into it some “subsidy” is involved, and if there is a subsidy the program is, by definition, a welfare program.

In the Samuelson version of Medicare as Welfare argument the elderly are getting more affluent, and healthier, therefore there should be means testing for Medicare insurance.  Omitted from Mr. Samuelson’s argument is that one of the prime reasons the elderly have more disposable income in general than they did in 1965 is that they no longer face unaffordable health insurance premium costs.

Samuelson goes on to contend that means testing is “fair” because the elderly survived the Recession in better financial shape than younger people, and that half the nation’s wealth is owned by those 55 and older.   Again, he conveniently omits the fact that this wealth is increasingly accumulated by a smaller percentage of the total population.

The last Profile of Older Americans issued in 2011 (pdf) by HHS reports:

“The median income of older persons in 2010 was $25,704 for males and $15,072 for females. Median money income (after adjusting for inflation) of all households headed by older people fell 1.5% (not statistically significant) from 2009 to 2010. Households containing families headed by persons 65+ reported a median income in 2010 of $45,763.”

A person’s wealth may increase as property values improve, and total wealth nearly always assumes the inclusion of all assets, but the income available for the purchase of health insurance is another matter.  Yes, there may be some people 55 and older who are increasingly affluent — but the majority of the elderly in this country who are a portion of the 99% are not part of Samuelson’s subset of the affluent elderly.

It’s hard to find much sympathy for arguments which assert that because wealthy Americans are called upon to pay into an insurance program for services which support fellow, less affluent, Americans this is necessarily worthy of the pejorative label  “socialism.”   Likewise, to contend that the entire Medicare program should be means tested because a few affluent people have the wherewithal to avoid using it is to impose the interests of the few upon the needs of the many.   Besides, premiums for Medicare Part B are already pegged to income levels.

Destroying the Village to Save It

The prophets of doom and gloom argue that the very solvency of the Medicare program is problematic and therefore only privatization or means testing are the best alternatives to salvage that program.

The means testing argument is perilously close to advocating the creation of a two-tiered health insurance  system for elderly Americans.  One proposal from the Right suggests that the affluent should be “means tested” and thereby receive fewer benefits while the less wealthy should be enrolled in Medicaid-like welfare programs.  [Cowen WaPo] Translation: The wealthy elderly will get the medical care they can pay for while the remainder (perhaps 99%?) will get what the Congress is willing to fund.

The critique of this thinking can be summarized as follows:

“Financing health care through revenues paid into a single, universal risk pool establishes equity by using progressive tax policies, while providing broad political support for a program from which we would all benefit equally. Providing benefit levels inversely related to life-time income might create the appearance of equity, but, in fact, it destroys equity by forcing many of us into a welfare program, impairing access to the health care that we need.”  [PNHP]

The perfect storm for the elderly in America would be a Medicare program in which (1) senior citizens would be driven back to the private markets with little or no guaranteed competition incentivizing health insurance corporations to reduce premium rates or provide more coverage, and (2) a means tested system in which the universal risk pool is divided into segments by income, and (3) the designation of less affluent, or poor, American elderly as “welfare recipients” in a Medicaid program, in which (4) the financial support would be in block grant form to the states and subject to budget cuts any time the Congress was moved to practice Austerity Economics.

The Trouble With Statistics

There are two ways to reduce spending on Medicare (a) increase the eligibility age and  (b) decrease the benefits.  But LOOK! People are living longer, therefore some economies must be made for the health of the system.  This was argued in a recent Reno newspaper LTE:

“That Americans are living longer is a gift, yet programs that serve these older Americans do not reflect critical changes in life expectancy. When Medicare was established in 1965, men had a life expectancy of 67 and women 73. Today, on average, a man reaching age 65 can be expected to live until 83, women until 85.”

Not. So. Fast.  Some care should be taken with those longevity figures.  Not only do we have an income gap widening in the United States, we also have a widening longevity gap.

“In 1980-82, Dr. Singh said, people in the most affluent group could expect to live 2.8 years longer than people in the most deprived group (75.8 versus 73 years). By 1998-2000, the difference in life expectancy had increased to 4.5 years (79.2 versus 74.7 years), and it continues to grow, he said.

After 20 years, the lowest socioeconomic group lagged further behind the most affluent, Dr. Singh said, noting that “life expectancy was higher for the most affluent in 1980 than for the most deprived group in 2000.”  [NYT 2008] see also: [IJE abstract] [NYT 3/2008]

There’s a racial component to these statistics as well, with whites generally having longer life expectancies than African Americans.  [AJPH] If a person is arguing that “life expectancy” is now 78.9 years of age — that’s true — for White Americans nationally.  For African Americans the number is 74. 6.  If a person is a Native American in South Dakota the life expectancy is 68.2. [KFF]

Longevity 1

As we can see from the chart, some caution should be applied to the tendency to over-generalize about the longevity of Americans.  While increasing the eligibility age for White Americans might seem to make sense, it doesn’t hold quite so well for African Americans, and comes nowhere close to securing the argument if one is considering the longevity of Native Americans.  Further, as the income gap continues to grow, and as it is demonstrable that the income disparity informs the longevity tables, could it not be argued that increasing the eligibility age serves only those already reasonably well served?

The Selection of Oxen To Be Gored

The one proposal which has not attracted the attention of the Beltway is the notion that there is another way to improve the solvency of the Medicare program.  It just happens to be the most painful for the 1%’ers.

“Elite anxiety over entitlement-driven budget deficits and accumulating national debt has created a powerful class in the nation’s capital. The agenda of this class is in many respects on a collision course with mounting demands for action by those lower down the ladder to address the threat to government social insurance programs.” [NYT]

This “elite anxiety” puts the blinkers on the obvious solution to many of the financial issues facing both Social Security and Medicare. Raise  or eliminate the income cap.  Failing to eliminate the cap subject to social insurance taxation, at least increasing the current $113,700 to, say, $250,000 would go a long way toward improving the fiscal outlook of Medicare.  What percentage of the U.S. population would be asked to contribute more if the cap were placed at $250,000?

Earning Over Cap 1

It’s remarkable that 1.2% of the total U.S. population has been so successful at promoting reductions in social insurance, and especially Medicare, programs keeping the focus of the media — and thereby the public — on the Cut Side of the ledger and with barely a mention of the revenue increasing alternatives.

And there are alternatives, what would eliminating the cap do?

“According to the Social Security Administration, fully eliminating the cap on taxable earnings would be sufficient to fully close the projected shortfall. If newly-taxed earnings above the taxable maximum were credited toward benefits, eliminating the cap would close most, but not all, of the gap.” [EPI]

If eliminating the cap altogether isn’t acceptable, then perhaps raising and indexing the earnings cap to include 90% of earnings might be considered.  The EPI suggests that this would cut the shortfall by half.

The EPI offered a third alternative:

“A third option would be to split the difference: eliminate the cap on earnings for employer contributions, and raise the cap to cover 90 percent of earnings for employee contributions. With earnings up to the employee cap credited for benefit purposes, this change would reduce the long-term shortfall by about three-fourths.” [EPI]

The objections to the elimination of the cap center on two major points (1) the more Social Security collects the more benefits it will owe, and (2) the elimination or modification of the earnings cap “isn’t fair.”  The first need not apply to Medicare, and the second serves primarily to confirm the unfortunate perception that the wealthiest among us are being “picked on” for the benefit of that amorphous 47%, although it is asserted that those suffering the most would be those immediately above the income cap level.    The problem with the last argument is that this will be the case in any endeavor in which any standard is established.

Meanwhile, the assault on our social insurance programs continues, and 13.1% of the Nevada population which is over 65 may well wonder what happens next.

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