The $1.5 Trillion Solution

By Stan Hinden | July 2009

About
Stan Hinden

Along with 45 million other Americans¹, my wife Sara and I, receive our primary health insurance coverage from Medicare, the federal program for persons over 65 and the disabled.

Medicare has several parts. Part A covers hospital stays, Part B pays for doctors bills and medical tests, Part C deals with managed care groups and Part D subsidizes the cost of prescription drugs.

Since we retired, Sara and I have been hospitalized on several occasions and Part A paid a large share of our costly bills. But most of our contacts with Medicare have involved Part B, which pays for doctor bills and the cost of MRIs and other tests.

Generally speaking, Sara and I have been happy with our Medicare coverage, for which we each pay $96.40 a month. Although we have heard some criticism of Medicare's payment policies, our personal experiences with Part B have been mostly positive.

While Medicare covers most of our health care costs, it does not cover them all.

When Medicare gets one of my doctor bills, the agency decides what that medical visit was worth--regardless of what the doctor charged. Medicare then pays 80 percent of the approved amount. The patient is responsible for the other 20 percent.

That is the reason why so many people on Medicare buy a secondary insurance policy which will pay for the other 20 percent. Secondary policies are called "Medigap" policies because they cover the 20 percent "gap" between what Medicare pays and what is left for a patient to pay.

Sara and I have Medigap policies through General Electric Co., Sara's former employer. The policy is administered by the UnitedHealthcare Co. and now costs $184 a month for both of us.

When Medicare receives and pays one of our doctor's bills, it electronically notifies UnitedHealthcare, which then pays the other 20 percent.

Sara and I are not alone in our satisfaction with Medicare. A national Commonwealth Fund survey, published recently in a Health Affairs web exclusive, reported that people on Medicare were more satisfied with their health coverage than people who get their health coverage from their employers. Medicare recipients reported better access to care and fewer problems paying medical bills than people who depend on the health insurance they get at work.

These findings are significant. In the ongoing debate over reforming the nation's health care system, one of the main proposals is to create a public insurance plan similar to Medicare for people who are under 65-the age at which Medicare coverage begins.

"This study shows that in important ways, Medicare works better for its beneficiaries than does coverage available to those under age 65," the authors of the study said. "The data suggest that if a Medicare-sponsored public plan option were made available, many under age 65 might prefer it."

Indeed, one of the many proposals being discussed in Washington is the creation of a way for four million uninsured adults, ages 55 to 64, to "buy into" the Medicare system. Proponents argue that many of these uninsured people often go without needed health care and become more costly patients when they finally reach 65.

All in all, there are about 46 million Americans under the age of 65 who have no health insurance². With the situation growing ever-worse, President Obama and Congress are now trying to find a way to make health insurance widely available and affordable.

The task won't be easy. The most commonly-cited price tag for health care reform is $1.5 trillion over 10 years. Just where that money is going to come from is uncertain. There's much talk about slowing or reducing the rising cost of health care but so far that hasn't happened.

Meanwhile, as the baby boomers retire, the number of people on Medicare is expected to rise from 46 million currently to 79 million in 2030, according to the Kaiser Family Foundation.

All of us were reminded of the challenges of paying for retiree health care when the Medicare Board of Trustees recently reported that total Medicare spending is expected to rise from $511 billion in 2009 to $926 billion in 2018 — an 81 percent increase. The board also told us that the Medicare Part A (Hospital) fund is expected to run out of money by 2017 — two years earlier than was predicted last year.

Medicare Parts B and D also face cost pressures, according to the trustees, who said, "Part B costs have been increasing rapidly, having averaged 7.8 percent annual growth over the last five years and are likely to continue doing so."

By comparison, they noted, the U.S. economy is expected to grow at only 4.5 percent on average during the next decade.

The trustees also noted that current law requires a 21.5 percent cut in payments to doctors in 2010 but that the cut is unlikely to happen. From 2003 to 2009, they recalled, Congress cancelled similar reductions in payments to doctors.

So how will Congress pay for health care reform? It seems inevitable to me that Americans under 65 will pay higher health insurance premiums and higher taxes to fund a new health care system. People who are over 65 and on Medicare can also look forward to higher premiums but also to reduced benefits and services.

For instance, to save money, Congress might reduce the 80 percent that Medicare now pays for doctor bills and medical tests. Were that to happen, it would impact patients but it also would hit Medigap insurance companies, which pay the other 20 percent of medical bills.

If Medicare were to lower its payments to 75 percent, Medigap insurers would then have to raise their payments to 25 percent.

While the insurers probably could do that, it would surely raise the price of Medigap policies-making them more expensive for policy-holders.

As a citizen, I sincerely hope that President Obama and Congress can find a way to provide affordable health care to all Americans.

As a retiree and a Medicare recipient, I hope that the health coverage we now receive will not be trimmed in a way that will restrict our access to the medical care we need — or become so expensive that we can not afford that care.

Finally, as a taxpayer, I recognize the high cost of providing health care to the nation. And while I am not eager to pay more taxes, I am willing to pay my fair share — as long as our health care companies and providers do their part to lower the costs of health care.

¹ According to the Kaiser Foundation 2009 Fact Sheet (PDF)

² According to the U.S. Census Bureau news release dated Aug. 26, 2008

The author was compensated for writing this article by AARP Financial.

While AARP endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recommend that you or any specific individual should purchase any particular product or service. AARP Financial Inc. is an investment adviser and a subsidiary of AARP.