Funding Medicare, Funding Health Care

One of the attacks on proposed health care reform that is rarely questioned is that the Medicare and Social Security systems are running out of money and that this would soon happen to any publicly funded health care system. This attack builds on some basic realities, but also takes some assumptions for granted which should be examined more closely.

The serious points on which this argument is based are first that a public option or any other serious effort to provide health insurance to the millions of Americans who are currently without insurance will not be cheap. This is reasonably obvious. The question of whether the government should be making this type of spending commitment at this time is a legitimate question. However, it should also be kept in mind that a public option will likely save individual Americans, including but not limited to those currently uninsured, money as costs for health insurance and health care generally will likely drop if we have a more rational system for providing health insurance and care.

Additionally, due largely to than less than sterling fiscal management of the previous administration, the budget generally is in bad shape. Medicare, Social Security and other programs may have uncertain financial futures, but that is true of our entire federal budget. We spent too much during the last eight years, while failing to bring in enough revenue to pay for it, creating debt and damaging the financial health of the country. In this context, Medicare does not stand out all that much.

Medicare is not, however, paid for out of general budget coffers. The federal contribution to Medicare comes from a pool of money which is raised primarily through FICA withholdings on payroll. Thus, Medicare, like Social Security, is paid for by a dedicated funding stream. The reason these programs look bankrupt is that the actuarial and financial equations have changed since the creation of these funding streams and now more money is needed.

This appearance is somewhat deceiving. If Medicare was paid for out of general budget expenses, rather than a dedicated funding stream few people would be concerned about the specific future of that program, but would instead focus more on the budget as a whole. The same applies to Social Security. The fiscal future of those programs would be tied to the overall federal budget. This would lead to a different conversation, one where instead of worrying about the specific funding sources for these and other important programs, more people would understand directly the impact of, for example, the extremely costly war in Iraq, as well as widespread tax cuts for the wealthiest Americans, have had on the futures of programs they value and upon which they depend.

A good health care program with a public option may well save individual Americans money, but will require new and different kinds of government spending. The expectation that this program be a net positive for the budget is not realistic, but it also has nothing to do with the goals of the program. Therefore, we should pay for health care reform not through creating a specific dedicated funding source that is expected to keep the program fiscally solvent. Rather, this program should be part of the broader budget and should be viewed in the context of other budget priorities.

Dedicated funding sources for new programs are often established to guarantee funding for that program, as well as to create the appearance that the program is not an entitlement, whatever that means, but is a program that people pay into over their working years. At first, this assures the survival of the program, but it also removes the program from broader budget debates. Thus, we pursue and discuss strategies to make the Medicare or Social Security fund more solvent in something of a policy vacuum.

The debate around the future of both Medicare and Social Security almost always occurs on a separate track from broader budget discussions and assumes that there is only one way to pay for these programs. This has particular relevance for health care because it is almost certain that within a few years of the legislation passing, health care will become a very popular program. Therefore, it is critical to establish a way to pay for it that does not allow it to be unfairly singled out as fiscally unsustainable. Rather future lawmakers should be forced to make decisions about paying for health care in the context of setting broader budget priorities. This may seem risky, but it will make it harder for these future lawmakers to shed crocodile tears over the future of health care funding while blissfully wasting American tax dollars on less useful programs and providing more tax cuts for the wealthy.

 

Comments

[Helen65]

I am sure all these uncertainties surrounding Medicare in the realm of health care reform has seniors concerned and anxious. But there is no need to worry whether Medicare will be in existence next year or in the future. The 1997 Balanced Budget Act included a provision assuring Medicare beneficiaries a smooth and uninterrupted transition in their healthcare coverage should Congress mandate any program changes in the future. So seniors do not need to worry about losing the 2010 Medicare plan they enroll in at the end of 2009. If anyone needs help with understanding or finding a Medicare plan for 2010, I recommend PlanPrescriber.com where you can find all the available plans in your zip code and do a plan comparison.

[billw8017]

Social Security is a popular tax because we are getting a good service at a good price, the connection between the service and the charge pleases people. We are willing to do our part and meet the costs. SS is not means tested. The poor get a little more in proportion to what they have paid but this is mostly realistic (they need it) and the program puts a bottom on misfortune as it covers everybody.

Medicare is similarly configured except it works through private providers. The sense of a bottomless pit of money looking to be dipped into probably has something to do with medical inflation. The drug program is a hideous failure: Market forces that originally set prices remain in play except now the government pitches in its money on top of the prices pharma has observed people are willing to pay.

The mark up on drugs is huge and growing. Perhaps, it is, in its own way, another of those bubbles that we have learned are the bane of capitalism. The drive for medical reform is the bursting of the bubble which might burst in another way without reform, probably internet smuggling out of India.

[Realization]

There is deafening silence from the powers that be about how to really provide care and save money.

The U.S. spends more than 16% of GDP on health care while other developed nations spend about 10% for universal coverage with less bureaucracy and unfairness. Cutting U.S. spending to the 10% level would save about $1 trillion per year. This would stop the drag on the real economy and improve our international competitiveness. (Increased growth would make it easier to pay for health care.)

Any "reform" that does not aim for this goal is not real reform.

The best option is single payer. This would make it possible to eliminate overlapping bureaucracies in different programs, make things easier for doctors, and it would keep all money put into health care in the system from birth through old age. Lot of leakage in what we have and what is being pushed.

[billw8017]

I agree except that cutting costs by a third as mentioned here seems unlikely. Just to cover everybody without increasing the proportion of GDP would be a success. Computers are cheaper, food is cheaper, but medicine keeps keeping on. There are two problems: 1) Everybody wants Cadillac care; and 2) new and extra technology.

In 1968, the Club of Rome published projections that by 20 something, there would be people thirty years old who had never had a bite of food in their entire lives. Similar projections indicate in the not so distant future all our income will go for our medical care. I put away the C of R's report when I got this far and I'm inclined to put away medical projections too. Perhaps costs WILL be cut in some unforeseeable way.

[Realization]

A couple of savings are cutting the overhead of private for for-profit insurance firms. No advertising, far less bureaucracy, no corporate jets, no big salaries (not just at HQ but in every state), no lawyer fees for M&A (a lot of what CEOs do now), etc.

Doctors would save by having a single billing system and clear rules.

A single-payer system would be able to negotiate prices for drugs and providers.

Current programs could be combined eliminating overlap.

Of course, you need to work on prevention and best practices. Easier in a single -payer system.

Other countries get the job done at the 10% level. No reason we can't except political obstruction. Matter of fact, we are Americans. Should be able to do better.

Also, just taking the medical care component out of malpractice suits (not needed with single payer) would cut awards greatly. I would also be for working on the tort reform issue (which is blamed on lawyers, fair enough, but is another insurance problem). And some responsible organization has to censure or withdraw the ability to practice form doctors with serious repeat problems. Info on reliability should be puclic.

I also figure that there would be some savings on my auto, homeowners, and boat insurance relating to medical costs (which are again covered by the single-payer system).

[bonnieblue12]

The Public Option is a non-profit insurance company that is being put in place because big insurance companies do not want to insure small employers and individuals at a reasonable cost including the rescinded that are blacklisted and those with pre-existing condtions. The savings of having the uninsured covered in this plan is billions saved in unpaid medical costs by emergency room visits for standard care and charity cases hospitals now absorb due to uninsured who must be admitted and treated but who are too poor to pay but not poor enough for medicare. The Public Option is to be paid for by premiums by those participating and are projected to be at least 20% lower than being offered by Private insurers who do not want them to start with and taxes on non-participating small employers who could but will not provide insurance and taxes on persons with incomes of 350k a year or more. These taxes also pay for other parts of reform such as putting in place electronic records, tuition reimbursement for medical students, closing the gap in Medicare Part B and other reform items..

[bonnieblue12]

Medicare is funded by our employer and our tax contributions and the reason it is projected to have problems has a lot to do with the fact that this tax has not been increased in decades despite exploding medical costs increases. If health reform passes, then the costs of medical is expected to reduce over time and that should put Medicare back in the black. However, if we do not put reforms in to combat the explosion of costs, then all of the health system as a whole including Medicare and the profiteering private insurance industry could eventually collapse just like our housing market did this past two years which brought down our economy to the worst levels it has seen since the great depression. In fact, the previous administration passed a benefit in Medicare for the payment of meds that can be huge amounts. They passed it but did not put in place any payment for that benefit. That has taken a toll on the Medicare system. That is just fact. That has cost billions and nno provisions to pay for it. That is one of the biggest reasons that Medicare is projected to have budget problems in the future. As to efficiency, Medicare has the lowest administrated costs of any health payment system and no one that uses it is denied care ever.

[Billl]

Government needs to become the basic necessities no frills provider of health care in a new reform system that would allow everyone the right to choose whether to use public or private systems.

If the President would allow what he calls “governments’ unfair advantages” to be used:

Everyone selecting public care would receive all care and medications free, no restrictions, no insurance and no co pays.

Businesses which select public care for their employees would have no further involvement to either pay anything for care or be involved in anyway with health care.

Using a national sales tax to pay for the public option would be a fairer way to spread risks and much less expensive than mandatory insurance, and care would be paid for when it is used without increasing our national debt.

All government funded costs could be reduced by hundreds of billions annually from the $2.6trillion spent last year if distributed only through civilian VA government hospitals.

America’s Veteran Administration is the largest, lowest cost; best outcome producing at any cost, health care delivery system in the US, it uses the world’s best medical software, and it has been controlling the problems with access, cost, quality, and malpractice successfully for years.

see Phillip Longman’s book Best Care Anywhere, Why VA Health Care Is Better Than Yours.

Going back and forth between free public, and user purchased private care, would allow unlimited choices, ultimate freedom, and always free public care would be available when it is needed.

[PlaceboStudman]

you can throw all the money in the world at a problem, but if that problem, such as insurance for health care does not solve the initial problem, then nothing will change. Clearly the story of Christopher and Dana Reeves and Natasha Richardson didn't stick with anyone, otherwise we'd be talking about how to improve HEALTH CARE, not just trying to figure out how cheaply we can get the poor quality health care many of us currently receive. Remember, Christopher Reeve died at home, of a septicemia, a systemic infection that happened due to bed sores that are an unfortunate consequence of living with paralyzed skin. And he had the best health insurance money can buy presumably

[mamacat]

As was stated elsewhere, the cost for reforming health care will be about half the cost of the money Bush gave away to his base, the filthy rich. I can think of one way to fund it, that won't involve taking any money from anyone except those who can afford to have their taxes restored.

A better health care system will not only fulfill a moral imperative, but it will be good for the economy.

"As investors, we should be getting behind health-care reform and pushing." - from an article in The Motley Fool, 09/10/2009

[DaveCarroll4]

OK, I'm almost 60... I'm a Vet... I'm a recovering addict... and I've seen this country go through the cold war, the civil rights movement, Vietnam, the woman's rights movement, the AIDS crisis, gay liberation and God only knows where I could go with this list! But it's only recently, since the current Republicant Party lost power and became the Party of NO, that I've seen this negative, "We Can't" attitude about the United States! Almost all of my life, I've lived in an America that ALWAYS said, "Well maybe THEY can't figure out how to do it, but you just watch, America CAN!" In WWII, when the men were mostly somewhere fighting for Freedom, our WOMEN took over the factories and became the most productive manufacturing sector the world had ever seen. After that war, the U.S. financed the rebuilding of most of Europe! So now they're telling me that we CAN'T on every issue that we face. The Republicants have become dissidents, and have adopted a completely Un-American attitude. If they think our Government is so worthless, why are they even part of it? Why don't they go live somewhere else? You know why? They can't steal all the money that they can here, anywhere else... that's why! Screw 'Em!!!

[SoCooLBob]

Public Option?
Aren't "we" the public?
If "we" say the public option sucks ... are we saying that we suck?

We sure do so far?

[texfly]

Anything 900+ pages is full of baloney. Why not start with HR676, 27 pages, short and sweet. A good place to start. Make the whole negotiation of compromises openly discussed nightly. HR676 is Single Payer, but the role of government as a simple financial pass-through to regional distribution agencies is reasonable.

It's time to let the insurance companies die. They have continually extorted high profits, since they exercised their political muscle 14 years ago. They also have been brazenly doing anything they wish to their paying clients in the name of profitability. Anyone who thinks they will change is a fool. They will give an inch and take a mile. The examples Obama gave were tragic and compelling, but the problems the "well-insured" routinely face add up to a mountain - new PPOs every year or sooner, denial of tests and procedures, hours on the phone and tens of letters each time there's a hiccup.

Make government's role limited and I think creating the funding plan and casting it in stone so healthcare is no longer a political football is necessary. Yes, we will have to pay for it and taxes (sugar, fat, smoking, gambling excise taxes) plus some premiums as payroll taxes. All fail to consider that we can take the healthcare burden off of corporations and businesses altogether. This would make our manufactured goods more competitive in the global market. WE HAVE TO DO IT! All other manufacturing nations in the world have government funded healthcare.

[Chip W]

Well, I'm with you, as are lots of others. Apparently this was considered politically unfeasible.

The Free Market worshipers - who won't consider that free market has limitations, maybe isn't the best model for everything, who won't note that free market doesn't equal fair market, who insist that anything but free market is socialist Big Government stealing our freedoms - is a major hindrance in this country. A boulder in the road.

[LyssaBarnes]

I am all for the public option. I hope that in the long run we can rid ourselves of the medicare and medicaid programs and use that money for the public option.

I am saying this because I have had horrible experiences dealing with both entities regarding elderly parents. After they got dumped by the insurance companies for being old and getting seriously ill (God forbid) then began the government assault. At the time there was no tax breaks for paying medical bills and I ended up filing bankruptcy. We need a healthcare system that will honor their commitment to help people who work and pay taxes, no questions asked.

[bonnieblue12]

I am sorry you had a bad experience with Medicare since the majority of the elderly get excellent care with no problems. I am sure this is too late, but you should have approached your local state government official for assistance in that matter that a lot of criteria has to be met to apply for Medicare. Medicare and Medicaid will never be eliminated just as private insurance will not be eliminated. The Public Option is not for those on Medicare or Medicaid or those who already have private insurance through an employer or large employer. Those persons would not legally be able to obtain insurance in the Public Option. However, if a person gets laid off and cannot afford COBRA or has been rescinded by private insurance, or has been denied coverage in the private market and the small employer, they are eligible to apply for the Public Option plan. As for tax breaks, any medical bills paid out of pocket that exceed the standard deduction amount is 100% deductible on your federal taxes. May need to check back with your CPA. I took off 10k last year I paid in cash.

[PigLipstick]

"With hardly any debate, a powerful Senate committee Thursday approved President Barack Obama's $128 billion request for military operations in Iraq and Afghanistan for the budget year beginning in October."

We never seem to find it necessary to debate the need for taxpayer money to murder people but we just can't come to an agreement when we need money to keep our country's citizens well. According to the National Institute for Health, 20,000 Americans die every year because they make too much to qualify for Medicaid and not enough to pay the escalating cost of healthcare. Our Pay or Die system of healthcare delivery continues unabated while Washington plays partisan games to gain political mileage !

[Hempy]

Funding for any government healthcare program can be easily achieved if Congress were to follow the example given by Adam Smith, the father of capitalism. In "The Wealth of Nations," Book V, Chapter 1. Smith wrote:

“When the carriages which pass over a highway or a bridge, and the lighters which sail upon a navigable canal, pay toll in proportion to their weight or their tonnage…. It seems impossible to imagine a more equitable method of raising a tax.” Alexander Hamilton picked up on this concept and expressed it thusly in Federalist Paper 12. Hamilton wrote:

“The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury.”

This is a proportional rate toll on the economic highway. It is consistent with both Smith's and Hamilton's philosophy of capitalism and taxation.

For example, derivatives are valued at $531 trillion. If taxed just once at 5% a year, that would generate about $26.6 trillion to the treasury. Even if a company moved a bundle of derivatives from one side of its balance sheet to the other, it would pay a toll for that movement. Of this kind of toll, Smith said: " It seems impossible to imagine a more equitable method of raising a tax."

[NordicSci]

Every toll has collection and compliance costs, some lower than others, some so high it becomes not worth collecting. It’s not just a matter of a fair and sufficient tax system, but a matter of not costing too much to collect or slowing the economy, and minimizing cheating and evasion schemes. It used to cost a lot of money to operate toll booths and in places like Chicago's Tri-State it often slowed traffic to a crawl, greatly reducing the "celerity" (great word) of circulation. But technology has come to the rescue in this case and tolls are being collected using transponders. I with going after the financial system, but I'm a bit distrustful of your numbers in your derivatives example as $26.6 trillion is more than the total annual output of the US economy. But I read somewhere that in the UK they use a 0.5% tax on stock trades, which raises a lot of money and presumably doesn’t significantly slow the celerity of trading (and maybe in this case a speed limit on trading might curb some irrational exuberance). Another "proportional rate of toll" system is the value added tax. And any tax that seems to hit lower income groups too hard (such as a value add or a gas/carbon tax) can also be rebated. The most effective tax systems are as broad based to keep rates down and reduce drag.

[OkieMon]

public option with no new taxes!!!!!

50 million working americans 50 and over and their employers are now paying into the health insurance corporations each year = 800 billion dollars (on average 8K for each employee and a dependent)...

if these 50 million were allowed to go on medicare at half the rate = 400 billion dollars each year into medicare to be distributed as follows:

cost of insuring 50 million poor on medicaid = 100 billion

cost to medicare of the extra paying 100 million people = 250 billion

medicare "profit" each year to keep the system solvent =50 billion

"complex problems have simple answers"..­...winston Churchill.

[oilyfilm]

Thank you for this post! I am a small business owner who pays out a great deal a month on health insurance premiums. I am constantly wondering why the debate on how to pay for a public option, or a single payer system for that matter, does not include the fact that millions of americans are already paying into a private health care system and would presumably pay into the public one. I would readily enroll my company into a public plan tomorrow if it were available, even at the same cost considering that the profits and administrative costs previously taken off the top could then insure any number of uninsured americans. I mean if I have to pay, I'd rather it not go to put some other guy's kid through college! It's the principle of the thing!

[Eggsackley]

It sounds like you would really benefit most from a single payer plan.