Posted by: adoseofliberty | September 14, 2009

Medicaid, Medicare, MediFAIL

Obama’s Pitch

Following President Barack Obama’s speech to the joint session of Congress that was nationally televised last Wednesday, September 9th, the Wall Street Journal had a great piece in the Opinion Review & Outlook section:

Mr. Obama began by depicting a crisis in the entitlement state, noting that “our health-care system is placing an unsustainable burden on taxpayers,” especially Medicare. Unless we find a way to cauterize this fiscal hemorrhage, “we will eventually be spending more on Medicare than every other government program combined. Put simply, our health-care program is our deficit problem. Nothing else even comes close.”

On this score he’s right. Medicare’s unfunded liability—the gap between revenues and promised benefits—is currently some $37 trillion over the next 75 years. Yet the President uses this insolvency as an argument to justify the creation of another health-care entitlement, this time for most everyone under age 65. It’s like a variation on the old Marx Brothers routine: “The soup is terrible and the portions are too small.”

A Look at the Existing “Public Options”

As the non-stop, though recently attenuated, emphasis on a “public option” health insurance program continues to pervade the health “reform” discussion, and as the WSJ rightly points out the massive unfunded liabilities of these programs, I decided to examine in detail the existing public health programs, Medicare and Medicaid.


The reports issued by the U.S. Department of Health & Human Services about the “financial operations and actuarial status of the” Medicare program can be found here.

Just for some perspective:

The Medicare Program is the second-largest social insurance program in the U.S., with 45.2 million beneficiaries and total expenditures of $468 billion in 2008.

The following is an excerpt from the 2009 report under section II. Overview, part A. Highlights. “Hospital Insurance (HI), or Medicare Part A, helps pay for hospital, home health, skilled nursing facility, and hospice care for the aged and disabled.”

The HI trust fund is not adequately financed over the next 10 years.
At the beginning of 2009 the assets of the HI trust fund were
$321 billion and are projected to be exhausted during 2017, under the
intermediate assumptions. The HI trust fund does not meet the short-
range test of financial adequacy.

HI tax income and other dedicated revenues are expected to fall short
of HI expenditures in all future years. The HI trust fund does not
meet our short-range test of financial adequacy, and fund assets are
projected to be exhausted in 2017. In the long range, projected
expenditures and scheduled tax income are substantially out of
balance, and the trust fund does not meet our test of long-range close
actuarial balance.
Currently, this imbalance is relatively small, with
dedicated revenues estimated to cover 88 percent of costs in 2009, but
it will grow rapidly in the absence of changes to current law: taxes
would cover 81 percent of estimated costs in 2017, and only
29 percent at the end of the long-range period. Closing deficits of this
magnitude will require very substantial increases in tax revenues
and/or reductions in expenditures.
(emphasis mine)

The following refers to SMI, which is Supplementary Medical Insurance and “consists of Medicare Part B and Part D. Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees.”

The SMI trust fund is adequately financed over the next 10 years and
beyond because premium and general revenue income for Parts B and
D are reset each year to match expected costs. However, further
Congressional overrides of scheduled physician fee reductions,
together with an existing “hold harmless” provision restricting
premium increases for most beneficiaries, could jeopardize Part B
solvency and require unusual measures to avoid asset depletion.
Part B costs have been increasing rapidly, having averaged
7.8 percent annual growth over the last 5 years, and are likely to
continue doing so. Under current law, an average annual growth rate
of 5.5 percent is projected for the next 5 years. This rate is
unrealistically constrained due to multiple years of physician fee
reductions that would occur under current law
, including a scheduled
reduction of 21.5 percent for 2010. If Congress continues to override
these reductions, as they have for 2003 through 2009, the Part B
growth rate would instead average roughly 8.5 to 9.0 percent. For
Part D, the average annual increase in expenditures is estimated to
be 11.1 percent through 2018. The U.S. economy is projected to grow
by 4.5 percent on average during this period, significantly more
slowly than either Part B or Part D
. (emphasis mine)

To sum it up, Medicare is going bankrupt.  Fast.  The only reason Part B and D have a better short-term projection is that physicians are getting the short end of the stick, so much so that Congress is even taking action to override these built-in fee reductions.  Families are already picking up some of the slack.  According to Milliman, an independent actuarial firm, in an article by Grace-Marie Turner and Joseph R. Antos, “Milliman estimates that the average family in a private PPO health plan pays an additional $1,788 a year to compensate for underpayments by Medicare and Medicaid, representing a “hidden tax” on commercial payers totaling $89 billion a year.”

HI Trust Fund Balance at Beginning of Year

This graph says it all.  Under “intermediate” assumptions, the HI trust fund assets will be gone in 2017.  Zero.  Nothing.  Nada.  “If assets were exhausted, payments to health plans and could be made only from ongoing tax revenues, which would be inadequate to cover total costs. Beneficiary access to health care services would rapidly be curtailed.”  In other words, rationing.  Yes, that evil word; a “lie”, “distortion”, “scare tactic” etc. actually does apply in this case, by definition. When there isn’t enough money to cover everyone, there’s no choice left but to provide services to some but cut it from others.

In reality, however, citizens will not be shy to voice their opposition once this problem does come full circle.  Congress will do the only thing it can do: raise taxes.  As the beginning of the report explained, closing massive deficits like this will require “very substantial increases” in tax revenues.  So much for not affecting those couples making less than $250,000.


As for Medicaid, Daniel Henninger explains the problems of the well-intentioned but financially-debilitating program in “‘Public Option’: Son of Medicaid“: “Medicaid is a morass. Since the program’s inception, Congress has loaded it up every few years with more notions of what to cover, shifting about 43% of the ever-upward cost onto someone else’s tab, mainly the states.”  He points out that “spending on health and welfare, largely under Medicaid, makes up one-third of California’s budget of some $100 billion.”  New York takes the cake with a Medicaid expenditure of $2,283 per capita, the most of any state in the country.

The main point of this analysis is that the President, the majority of Congress and a significant portion of the U.S. population is pushing for a “public option” that we already know will fail.  Einstein’s famous quote sums it up nicely: “Insanity: doing the same thing over and over again and expecting different results.”


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