Medicare Myths vs. Facts – “Doc Fix” Edition

The Myth

The Truth

Here's Why

“Medicare is going broke.”

Medicare is not in crisis.  It is on solid financial footing, and, in fact, is stronger than predicted.

Medicare Part A is mostly paid for with payroll taxes which go into a Trust Fund.

The Affordable Care Act recently extended the projected life of the trust fund by four years, from 2026 to 2030. However, even if Medicare Part A were to become insolvent by spending more than it is taking in, the program will still be able to pay out 85 percent of its benefits.[1] While not ideal, this is a far cry from “bankruptcy.”   Further, the date of projected insolvency is not set in stone, and could easily change. The Trust Fund largely reflects the health of the economy. At various times since 1970, the trustees have projected Trust Fund insolvency in as few as 4 years or as many as 28 years.[2]

Importantly, Medicare Part B is funded by a certain percent of general revenues and premiums, and therefore cannot “go broke.”

“Costs are growing out of control.”

National costs of Medicare have grown at historically low rates the last few years—0.3 percent in 2012 and zero in 2013.[3]

Medicare spending grew at 5.5 percent between 2000 and 2013 while private insurance costs grew 6.1 percent during that same time.[4]

Average costs per Part A beneficiary have gone down since 2011 and average costs per Part B beneficiary were reduced between 2012 and 2013. Part A and Part B spending per person is estimated to decrease between 2014 and 2015.[5]

As the large Baby Boom generation retires and begins to utilize their Medicare benefits, Medicare’s spending will, of course, increase, due to the greater number of beneficiaries in the program. 

Thoughtful reforms, including those included in the Affordable Care Act, can work to sustain Medicare’s long-term fiscal health and should be given an opportunity to work. One way to save Medicare money would be to pay private plans the same amount of money that traditional Medicare receives. Another way would be to restore the Medicaid rebate on prescription drugs for low-income beneficiaries.

Medigap plans “insulate people from costs and … encourage the overuse of healthcare.”[6]

Studies do not support this contention, not even those that have shown that individuals with supplemental coverage use more services than those who don’t have such coverage.  Moreover, research shows that increased cost-sharing leads people to delay needed medical care until receiving such care is critical, often leading to an increased use of more expensive care, such as hospital visits,[7] Meaning such cost-sharing provisions actually end up costing Medicare more.

The House-passed SGR bill would add a deductible to Medigap plans purchased by new Medicare beneficiaries beginning in 2020.

In 2014, half of all Medicare beneficiaries lived under 200 percent of the national poverty level of $23,500 per year.[8]

Among individuals who have both Medicare and employer-sponsored supplemental insurance, research shows that asking beneficiaries to pay a deductible for Medicare led to “greater inpatient hospital care for chronically ill beneficiaries” as well as “Medicare paying more altogether because such beneficiaries end up using more expensive care.”[9]

Research surrounding the effects of increased cost-sharing found that “poor people reduced [their] outpatient care more than higher-income people.”[10]

Medicare needs to be “restructured” or “redesigned.”

While there are certainly ways to expand Medicare benefits, reduce beneficiaries’ cost-sharing burdens, and make the program less confusing, proposals to “restructure” or “redesign” Medicare are almost always offered within a budget context with the purpose of achieving savings. More often than not, this means asking middle-and upper-income beneficiaries to pay more for Medicare, and receive less.

Policymakers periodically float a number of “restructuring” proposals, such as: 1) combining the Part A and B deductibles; 2) implementing a single coinsurance rate for services, and 3) turning all or part of Medicare into a premium support or voucher program.  Each of these proposals would shift additional costs onto Medicare beneficiaries.[11]

In addition, as recently as January 2015 in a House Energy & Commerce hearing, former US Senator Joseph Lieberman advocated raising the age at which one could receive Medicare benefits from 65 to 67. Available research shows, however, that doing so would shift billions of dollars of out-of-pocket health costs to those who are between 65 and 66.[12]  The raising of the age of eligibility would also shift costs to “employers who provide health coverage for their retirees, to Medicare beneficiaries, to younger people who buy insurance through the new health insurance exchanges, and to states.”[13]  Other research has shown that the impact of the proposal to increase the age of eligibility would be felt primarily by poor people and minority groups such as African-Americans and Latinos, who already have poorer health relative to the rest of the population.  34 percent of Latinos and 26 percent of blacks would become uninsured.[14]