Cutting Medicare Advantage
“Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity,” Heritage Foundation, May 10, 2011 by Stuart Butler, Ph.D. , Alison Acosta Fraser and William Beach is one of the finest papers I have ever read. Over the next few days I will post portions of this paper, but I will start off with the section on Medicare.
Medicare
Summary
The Medicare program faces a 75-year unfunded liability in excess of $30
trillion even as it is plagued by serious gaps in coverage, an increasing number
of demoralized doctors refusing to accept new Medicare patients, a sluggish and
outdated system of inflexible governance, and tens of billions of dollars in
annual losses to waste, fraud, and abuse.
What Is Medicare?
Medicare is the federal government’s health insurance program for all
Americans age 65 and older and for the disabled. In 2010, the program covered 47
million enrollees. Almost half (47 percent) have annual incomes below 200
percent of the federal poverty level ($21,660 in 2010 dollars for individuals
and $29,140 for couples). An estimated 45 percent have three or more chronic
medical conditions, and 17 percent are non-elderly people with disabilities.
Medicare is projected to spend $549 billion in 2011, increasing to $891 billion
per year by 2019.
Medicare has four parts.
- Part A covers in-patient hospitalization, hospice care,
and some home health care. It is funded by a 2.9 percent payroll tax, but
projected spending will far exceed future tax revenue. - Part B is voluntary and covers physician services,
outpatient hospital services, preventive care, and some home health services.
Beneficiary premiums cover just 25 percent of Part B costs. Taxpayers pay for
the remaining 75 percent. Federal Insurance Contributions Act (FICA) payroll
taxes contribute nothing to Part B. Premiums are income-related. - Part C, the Medicare Advantage program, is also
voluntary. It consists of private plans that already compete in the Medicare
program. They are funded by a combination of enrollee premiums and taxpayer
subsidies, including Part A funds. - Part D is the voluntary Medicare prescription drug
program. FICA payroll taxes do not fund this part of Medicare. Enrollees pay
income-adjusted premiums, but the costs for all beneficiaries are subsidized by
taxpayers, with greater subsidies for low-income enrollees. While beneficiary
premiums account for approximately 10 percent of Part D financing, 82 percent
comes from general federal revenues, and approximately 8 percent of the funding
comes from states and other sources. As with Medicare Part B, wealthy retirees
pay higher premiums, up to 80 percent of the costs of the drug benefit.
Medicare Part A and Part B together are sometimes referred to as traditional
Medicare or Medicare fee-for-service (FFS). This means that doctors, hospitals,
and other medical professionals are paid for the individual services that they
provide to patients as opposed to being paid salaries or given “capitated”
payments as payment for all of the care provided to a senior. The fees are
governed by government fee schedules or payment formulas for specific medical
services.
The Daily Hatch 