Preserving Medicare Benefits by Controlling Health Care Costs

Preserving Medicare Benefits by Controlling Health Care Costs

The Challenge

To "fix the debt," we should focus on fixing the economy. Investment in jobs and growth will a) reduce the costs of high unemployment, b) raise more revenue, and b) reduce the debt burden. Instead, a small but well-funded and loud group of "deficit hawks" is demanding to "cut entitlements," including Medicare. Now, as President Obama seems to be on the verge of forcing Republicans to accept tax increases on the wealthy, conservatives are demanding a large payoff in return: cuts to Medicare benefits that would raise costs for seniors now and undermine the program for future retirees.

The trade-off is morally offensive: Why should fairer taxes from the rich be allowed only if accompanied by less health care for the old or vulnerable?

Their cuts are aimed at the wrong target. We don't have an "entitlements" problem; we have a broken health care system. The rising costs of publicly funded health care programs like Medicare will consume a larger portion of the budget in the future if nothing is done. But the real problem is runaway health care costs generally, driven by the entrenched corporate interests – the drug and insurance companies and the private hospital complexes – that have made our health care the most expensive in the world.

Make the Case

Voters overwhelmingly rejected the right's plan to turn Medicare into a "voucher" in the 2012 elections. Now conservatives have another strategy to weaken Medicare: raise the age of eligibility; that is, eliminate benefits for 65- and 66-year-olds. (Republican leaders in Congress don't want to admit that publicly, so they propose $600 billion in Medicare and Medicaid cuts without any explanation of how they arrived at that number or which specific policies they have in mind to reach that number.)

Denying Medicare to 65- and 66-year-olds will actually cost more money than it saves. The best estimate is that $5.7 billion in projected federal savings in Medicare will end up forcing individuals, states and employers to pay an additional $11.4 billion for health care. (See Ezra Klein's explanation on MSNBC [1] and on Wonkblog [2] .)

There are also reports that House Republicans want to increase Medicare costs for people with higher incomes. But three out of four people with Medicare have incomes under $40,000, and the very small number of seniors with incomes over $80,000 already pay considerably more for Medicare.

If the overall U.S. health care system controlled costs as well as most European countries, both Medicare and overall health care costs would be fully affordable. To do that, you have to take on the drug companies, insurance companies and hospital complexes that drive up costs. Cutting benefits - or eliminating them for 65- and 66-year-olds - doesn't control costs. It simply shifts the costs from the public budget to individual seniors or their families. (Economist Dean Baker of the Center for Economic and Policy Research documents this. [3])

Case in Point

Medicare is more cost-effective than private insurance because Medicare uses its leverage to keep doctor and hospital rates in check. So why would we want to push more people into the private health care system?

Medicare enjoys almost universal public support. As the poll numbers below show, it is one of the most successful and popular programs in our nation's history.

Today, more than 50 million older Americans and people with disabilities today have access to affordable health care thanks to Medicare.

If conservatives succeed in raising the Medicare eligibility age, many 65- and 66-year-old retirees will find themselves uninsured. Others will try to stay at work, adding to their employers' health care burden while limiting job opportunities for younger workers. Employer health insurance costs will rise as a result.

Still others will seek coverage through the new health insurance exchanges – if they can afford it. Two-thirds of people 65 and 66 (3.3 million people) would face an average of $2,200 more each year in premiums and cost-sharing. Medicare itself would be weakened, with fewer people in the program and less leverage to reduce health care costs. Such short-sighted conservative "reform" will result in chaos in the lives of people making the transition from work to retirement – and it would end up increasing the costs to our overall health care system. (See the Center for Budget and Policy Priorities, "Raising Medicare's Eligibility Age Would Increase Overall Health Spending and Shift Costs to Seniors, States and Employers." [4])

If they succeed in means-testing Medicare, they would be changing Medicare from a universal program that serves all Americans into an underfunded health care program that serves only the elderly poor.

Conservatives have no plan to attack the wasteful private health care system that is driving up cost of health care for all Americans - including the costs for those in Medicare. Their only plan is to shift costs onto vulnerable older adults and people with disabilities who already typically pay half the cost of their care even with Medicare.

To bring down Medicare costs in the long run, we need another round of health care reform aimed at making our private and public health care system as cost effective as other nations that deliver more coverage and better care at lower cost. Medicare should be a tool for leveraging that reform.

Medicare would be even more cost-effective if Congress – in the pocket of big drug companies and the rest of the medical industrial complex – hadn't forbidden Medicare from negotiating with big drug companies or paying fair prices for a variety of health care goods. Drug costs can be cut dramatically by requiring drug companies compete to lower prices, as the Veterans Administration already does. Savings were estimated to be between $332 billion and $565 billion, according to an analysis by the Center for Economic and Policy Research. A new report from the Center for American Progress report finds we could save over $159 billion over 10 years. If we want to reduce Medicare costs, isn't this a no-brainer?

Counterpoint

When they say: Entitlements like Medicare are unsustainable and will bankrupt our economy, especially with so many baby boomers retiring.

You can say: Medicare has had nothing to do with today's deficit increases, which were caused by 1) President Bush's tax cuts; 2) two wars President Bush and Congress "put on a credit card"; 3) the Medicare prescription drug plan, which put insurance companies in charge; and 4) the financial crisis that plunged the economy into a recession, reducing tax income and increasing public costs for unemployment and welfare. These root causes need to be addressed with bold steps to reduce unemployment and spur growth, by rolling back the tax giveaways President Bush bestowed on the rich, and with regulatory reform to ensure that Wall Street excesses don't blow up the economy again.

When they say: Whatever caused today's deficits, Medicare costs are the driving factor that will cause deficits to soar in the next several decades.

You can say: No, we don't have an entitlements problem; we have a broken health care system. Medicare is the solution, not the problem. Rising Medicare costs are driven by an inefficient and wasteful private health care system, dominated by for-profit hospital chains, insurance companies and global drug conglomerates, which work hand in glove to drive up health care costs as high as possible. Let the government intervene to prevent these predatory interests from using their monopoly power to set excessive rates - as other countries have done - and Medicare costs will stabilize and the long-term deficit problem will disappear.­

When they say: President Obama cut $716 billion from Medicare to pay for Obamacare. He's cut it much worse than our plan.

You can say: Obama's reforms strengthened Medicare, without either cutting Medicare benefits or shifting additional costs onto people with Medicare. In fact, they extended the life of the Medicare Trust Fund by eight years and added benefits (such as paying for drug costs) while eliminating waste. Most of those Medicare cost reductions were negotiated with hospitals and drug makers that agreed to lower costs in exchange for millions of new paying customers. Those are the reforms we need - not cuts that simply transfer the costs of needed health care to those least able to afford them.

When (some) say: We want to make wealthy seniors pay more because they can afford it.

You can say: This reform weakens Medicare without raising much money. The 5 percent of seniors with incomes over $85,000 already pay at least 40 percent more for Medicare premiums and some with incomes exceeding $214,000 pay more than three times more. We need reforms that get costs under control, not cuts in benefits.

When (some) say: We should raise the retirement age because people are living longer.

You can say: People in the bottom half of the income scale actually aren't living all that much longer; it's just people in the top half who have seen dramatic longevity gains. Besides, raising the retirement age IS a benefit cut, reducing the number of years each person is covered. It increases what we spend on health care, but sends the bill to employers or individuals. And it will leave some with no health coverage at all.

Public Pulse

♦ 79% of individuals believe it is unacceptable to cap Medicare payments in order to reduce the deficit. (Democracy Corps [5])

♦ 60% of individuals believe the federal deficit is a big national problem but making major spending cuts in Social Security and Medicare should not be part of a deficit reduction plan. ( Democracy Corps [6])

♦ 79% of individuals do not think Medicare should be cut at all in order to reduce the deficit, 77% of individuals feel the same way about Social Security and 63% of individuals feel the same about Medicaid. ( United Technologies/National Journal [7])

♦ 67% of individuals oppose raising the age for Medicare coverage from 65 to 67. ( ABC News/The Washington Post [8])

♦ 49% oppose changing the way Social Security benefits are calculated so that annual increases are smaller. (AP-GfK Poll [9])

♦ 49% of individuals do not believe that placing strict limits on how much Washington will spend on Medicaid and Medicare should be part of the package to reduce the deficit. (United Technologies/National Journal [10])

♦ By a margin of 3 to 1, voters in the swing states of Ohio, Florida and Virginia don't believe Social Security and Medicare need to be cut to reduce our deficits ( The Washington Post-Kaiser Family Foundation [11]).

♦ Given choices for reducing the deficit, including raising taxes on the wealthy and reducing Medicare benefits, 83 percent of Americans oppose cutting Medicare (13 percent supported those cuts) and 68 percent favored raising taxes on households with incomes higher than $250,000 per year ( The Washington Post-Bloomberg News [12]).

♦ An August 2012 Pew Poll finds 72 percent of Americans have heard a lot or a little about a proposal to change Medicare into a voucher. And among those who are aware, the idea remains unpopular; by a 49 percent to 34 percent margin, more oppose than favor the idea. This is virtually unchanged from public reactions a little more than a year ago, when Republicans in the House voted in favor of this proposal as part of the "Ryan plan" (Pew Research Center [13]).

♦ A July poll shows the popularity of Medicare among seniors. The poll found that 89 percent of seniors are satisfied with the coverage they currently have through Medicare. ( Richard Day Research for Allsup Medicare Advisor [14])

♦ 66 percent of Americans, including 45 percent of Republicans and 64 percent of independents, favor increasing income taxes for upper-income Americans, compared with 42 percent of Americans who support making "significant changes" to Social Security (Gallup [15]).

♦ 66 percent of Americans said they were very worried about "not having enough money for retirement," making it the issue that the largest number of Americans are concerned about (Gallup [16]).

Tweet This

Don't cut #Medicare benefits. Let Medicare drive innovations that lower costs and improve care http://t.co/eOU2Ycdm [17] #smarttalk @OurFuture

Let #Medicare lead in delivering value. Private insurers won't on their own contain costs or drive improvements http://t.co/eOU2Ycdm [17] #smarttalk @OurFuture

Congress: Focus on the working-class health care cliff. Get overall costs down through real health reform http://t.co/eOU2Ycdm [17] #smarttalk @OurFuture

Don't cut #Medicare benefits. Lower deficit by making drug cos charge same prices in US as in France or Canada. http://t.co/eOU2Ycdm [17] #smarttalk @OurFuture

Americans love #Medicare. Private insurance costs more. Voucherizers are same ones who wrecked economy. http://t.co/eOU2Ycdm [17] #smarttalk via @OurFuture

Tell Congress: Protect #Medicare and seniors' health needs, not profits of medical industrial complex and Wall Street http://t.co/eOU2Ycdm [17] #smarttalk

It's the health care prices, stupid. Give #Medicare option to all and health care costs come way down http://t.co/eOU2Ycdm [17] #smarttalk via @OurFuture

Learn More

» OurFuture.org "Defending Medicare" page [18]

» "The Real Mandate," Campaign for America's Future and Democracy Corps [5]

» Health Care for America Now - Medicare and Medicaid page [19]

» Economic Policy Institute's Retirement research page [20]

» Center for Economic and Policy Research's Social Security and retirement issue page [21]

» Fixing our Fiscal Health: Budget Deficits and Health Care Costs [22]

» Smart Talk on Medicare: Battleground of the Bogus Deficit Debate [23]