Medicare – Will the money last?

~ By Robin Avery ~

First, let’s separate Medicare from Medicaid. For years I’ve heard Medicare mistaken for Medicaid, and vice versa. My friends, my fam­ily, even a lawyer friend typically get the two confused. For the record, Medicaid is a health care program for families and individuals with low incomes. Medicare is a national insurance program, administered by the federal government since 1966, that guarantees access to health care for Americans aged 65 and older who have worked and paid into the system through their paychecks.

The question is—given the costs of health care generally, and specifi­cally the baby boomers entering the Medicare system—can we continue to pay for it?

Medicare is very popular. According to a 2013 survey by the Robert Wood Johnson and Kaiser Family Foundations, and the Harvard School of Public Health, 80% of seniors aged 65 and older feel the program is working. Even 76 percent of Republicans say the budget deficit can be cut without cutting Medicare.

Medicare is also expensive. In 2013 the Federal government spent $498 billion on approximately 54 million Americans.  That was $6254 for every family of four ($1563 for every individual). Nearly every family of four has a grandpa and grandma who received Medicare services that same year.

Medicare is also complicated. To help me prepare for this column, I reached out to M. Kent Clemens, a Fellow at the Society of Actuaries at the Center for Medicare and Medicaid (CMS ) in Washington, DC.  As an actuary, Clemens is responsible for providing data to Congress as they deliberate the na­tion’s budget.

First some basics, then the complex stuff. Medicare is comprised of Medicare Part A (hospital coverage), Medicare Part B (outpatient services), and Medicare D (prescription drugs). There are two sources of payments for these three components, payroll taxes and the general tax fund.
The Medicare debate is in three parts, Clemens explains: Medicare’s present financial status, its impact on the federal budget, and the pro­gram’s longer-term sustainability.

Financial status is understood to mean the total assets of the Medi­care Trust Fund. Imagine that the Fund is one of only two buckets into which all taxes flow. Bucket #1, the Medicare Trust Fund, is filled with money collected specifically for the Medicare health insurance program through payroll deductions. The annual report of the Medicare Board of Trustees to Congress focuses on this Trust Fund’s ability to meet current and future demand for the next 75 years.  From the Trust Fund perspec­tive, for the entire history of Medicare, income from all sources has been sufficient to meet expenditures in most years.

Bucket #2 is the General Fund of tax revenue collected for use by our government. The entire Medicare Trust Fund, Bucket #1, contributes 25% of the cost of Medicare. The General Fund, Bucket #2, must contrib­ute the remaining 75% of the total Medicare cost.

With the nation’s debt at $17 trillion, it’s no wonder that there is pres­sure to reduce Medicare costs. Seniors could not pay for their health care if each had to shoulder the actual cost.

All the money in Bucket #1 goes for Medicare Part A. The Trust Fund is considered insolvent when available revenue plus any existing bal­ances will not cover 100 percent of annual expenses. According to the latest estimate by the Medicare trustees (2011), the Medicare Trust Fund is expected to become insolvent in 2024, at which time available rev­enues will cover only 90% of projected annual costs.

The Affordable Care Act (ACA, also called Obamacare) created The Independent Payment Advisory Board (IPAB) to determine how to make Medicare savings. Under ACA, Congress established maximum targets for Medicare spending growth. Clemen’s office will compare those two values, and if the spending targets are larger than saving mea­sures, IPAB must propose cost-savings recommendations for consider­ation in Congress.

Use of General Funds (Bucket #2) for Medicare will be hotly debated. Medicare, overall, requires a significant amount of financing from the Federal budget. Given its popularity, politicians will continue to fund it but everyone realizes the system has to become less expensive, and more efficient and sustainable.

Increased transparency is one method of cost containment. A recent investigation of Medicare Advantage alleges overbilling of the govern­ment by some $70 billion. But because medical patient records are confi­dential, it is difficult to prove overbilling by health providers who claim that their patients are sicker than they actually are.

Better cost monitoring of prescription drugs is another area of huge potential savings. Take for example the two drugs Avastin and Lucentis. Both are used to treat conditions that lead to blindness in the elderly, and studies show both are equally effective. Avastin costs $55 per dose, and Lucentis costs $2,023. Still, one-third of patients being treated for this condition receive Lucentis. If every patient received Avastin instead, Medicare Part B would save $18 billion over the next decade.

Who delivers care is another area of huge potential savings. Nurse Practitioners, for example, examine, diagnose and treat patients for 15% less than primary care physicians. If we, as a country, can utilize more Nurse Practitioners we achieve significant cost savings. And, we can help alleviate the primary care physician shortage and bring them into the market faster to serve the growing number of seniors who need care, because their education takes six years, as compared to eleven to twelve years for physicians.

Finally, imagine the savings to the system if all of us Baby Boom­ers started to practice healthy lifestyles. The savings would be incalculable!

Robin Avery is a Gerontologist, Consul­tant, Developer and Operator of assisted living communities, with a Master Degree from The Naropa University. He can be reached at

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