Medicare is a voracious entitlement, consuming an ever greater share of the federal budget and creating an ever widening gap between payroll tax revenues and Medicare annual expenditures. The program is in dire need of reform--with abuse, fraud, and government mismanagement its hallmark characteristics. As with Social Security, the solution to the problems we confront from Medicare is to phase this costly program out of existence in favor of privately funded alternatives. The goal should be to re-empower individuals so that their freedom of choice in obtaining health care service is maximized in lieu of the ever increasing federal bureaucratization of medical practice. As with Social Security, the phase out needs to occur with a conscientious regard for the lives of those millions of Americans who have been led to believe the lie that the federal government could always provide for their every need from cradle to grave.
1965, every congressional projection of the cost of Medicare has been
remiss, short by tens of billions of dollars. In 1965, the entire benefit
was projected to cost $9 billion by 1990. It actually cost $67 billion
in 1990. The cost of Medicare has doubled every four years since its
inception. Medicare spending equaled about $440 billion in 2007, representing
16% of federal spending.
Medicare spending topped $599 billion in 2008, equaling 20% of federal spending, and exceeding payroll tax revenues for the first time in that year. In 2010, the Medicare program spent $793 billion, equaling 23% of all government spending and greatly exceeding payroll tax revenues. In 2011, the program will likely dole out close to $1 trillion, adding to the enormous chasm between payroll tax revenues and the cost of the program. That shortfall will increase year after year, even if payroll taxes are increased four-fold (driving up unemployment, worsening the economy, and exacerbating loss of tax revenues needed to fund this out-of-control system). The number of people enrolled in Medicare is expected to rise from 47 million presently to 80 million by 2030. By 2030, it is likely that Medicare will cost the federal government over $30 trillion.
Thomas Jefferson once remarked in terms even more applicable today than they were in his time: “I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.” The Medicare program is a prime example of parasitic government. It is an all-consuming, ever growing entitlement. It provides coverage for a standard, one-size-fits-all set of benefits, not so bad as to be undesirable but not so good as to be sufficient to provide the most effective treatment. While the care provided is better than none at all, it is far short of exceptional, patient-centric care. It daily results in seniors being denied the best care simply because the best care is not what Medicare deems “medically reasonable and necessary.”
The best care often exceeds the care covered by Medicare. If care in excess of Medicare covered service is provided, the provider risks Medicare audits that can result in high Medicare reimbursement demands. The Center for Medicare and Medicaid Services relies on insurance carriers to serve as proxies that lord over physicians, second guessing their every provision of care and all of their billing for it—in short, second guessing their independent professional judgment. It causes physicians to be ever mindful of limits on coverage and fine distinctions between covered and non-covered services and to stand in trepidation of the insurance carrier because the carrier can require an audit and demand reimbursement for fees already paid. Physicians steer clear of recommendations that Medicare may consider not medically reasonable and necessary. Medicare distorts the medical marketplace by retarding innovation (causing physicians to avoid practices that might be new or promising in disease treatment for fear of Medicare labeling the practice an abuse) and by causing costs to escalate for anything used in medical care that is not subject to Medicare fee limits.
The present system is unaffordable and unsustainable. By 2020, it will be in dire straits. With millions of boomers depending on Medicare year after year and with program costs escalating at an alarming rate, it will not be long before the distance between payroll taxes and program spending will become so great as to force drastic cuts in benefits or huge increases in taxes or both. There is, however, a better way, one that would restore the all-important patient-centric nature of medical care and would depend on market incentives for affordable care.
I start with an ambitious supposition—that Congress will regain its senses and repeal President Obama’s health care reform bill before it takes full effect on January 1, 2014. If we add in the enormous costs the government takeover of health care will impose, the game is effectively up. We will watch as the nation defaults on its debts and inflation joins high interest rates in driving the economy into the worst financial state since the Great Depression.
If in 2012 we elect to the Senate and the White House people dedicated to eliminating the President’s health reform law and restoring fiscal stability to the nation, we have a chance of enacting the reforms that I propose here. We can reduce and eventually eliminate American dependence on Medicare through a phased private programs and benefits. We start in an awful state typical of socialist systems. Weening America of this system will not be easy and it will require phased in steps toward a free market in health care. An abrupt end to this system would evoke howls of protest and political countermeasures that a phased in program will not. The goal is ambitious but the necessity of achieving it is unmistakable.
In the first instance, the federal government should exclude from Medicare those who are financially able to pay for their own care either alone or with private insurance and should reimburse those so excluded in lump sum payments the amounts they paid for Medicare through payroll taxes (less any amounts received following the commencement of Medicare coverage). Next, the federal government should also permit physicians to opt out of Medicare on a service by service basis, enabling them to recommend and provide service superior to that covered by Medicare if a Medicare beneficiary is willing to pay for the additional service out-of-pocket, creating a new competitive market and permitting higher quality care.
The federal government should phase-out Medicare by permitting as an alternative for each person presently on Medicare to receive an annual, flat, needs-based payment, deposited into a private medical savings account usable by that person exclusively to aid in payment of medical insurance of his or her liking or, if not, in direct payment of medical services. For each person presently in Medicare who opts out of the system, we should also eliminate federal, state, and local taxes. We should provide those who expend 20% or more of their annual income on medical expenses and medical insurance, a marketable tax credit that would enable providers who serve these individuals to deduct 100% of the cost of the services performed from their federal income taxes for the amount of the service provided free of charge to the patient. For those presently suffering from catastrophic conditions that involve the provision of medical services in excess of 50% of their annual income, corporate providers who will finance the cost of the treatments in whole or part should be given an annual federal income tax deduction equal to the amount financed. Remaining costs for such care should be financed by the federal and state governments directly to the institutions providing the care.
Payroll taxes for Medicare should be reimbursed to all Americans who will opt out of Medicare and who elect to pay directly or to purchase private insurance coverage. Private insurers should receive tax deductions equal to the amount of discounting provided to individuals who opt out and can prove a financial inability to afford health insurance. In addition, any who pay for the health care or medical insurance of others should receive a federal tax deduction equal to the amount paid for that care or insurance.
Through a scaling down of Medicare in favor of private care, such as this, we can eliminate Medicare and replace it with a system that is patient-centric, affording higher quality care, greater patient control over service, and greater physician and institutional flexibility in treating patients. The result will be a vastly superior system of medicine, one that requires far less of federal, state, and local governments than Medicare. Over time, systems that provide interim federal assistance may be eliminated as market forces and competition in medical pricing reassert themselves.
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Given the economic reality of an exploding Medicare budget, we have few choices other than, on the one hand, drastically cutting service, drastically increasing taxes, or both, or, on the other, replacing this failed government system with one that depends on individual choice, private incentives, and free markets. Of those options, logic and reason should lead us to the latter alternative. If we choose that latter course, we will not only improve health care, we will also save the nation from economic ruin caused by this runaway entitlement program.
© 2011 Jonathan W. Emord - All Rights Reserved