The Medicare Myth, Or Why We Can't Trust Anything Our Politicians Tell Us about Health Care Financing

The 2013 Medicare Trustees report is out, and it proves once again that the so-called Medicare funding crisis is a myth that has been manufactured by political leaders more interested in cutting the size of government than in assuring access to health care for all.

Those may seem like strong words, but we have been waiting for a long time for government leaders to tell us the truth about Medicare.  That it hasn’t contributed to our budget deficit.  That its trust fund is solvent. 

And, most important, that it would take only the tiniest of tax increases to preserve Medicare as we know it for everyone who is alive today.

The 2013 report was released last week.  Nearly one in every six (or 50.7 million) Americans is covered by Medicare.  42 million of them are age 65 and over, but 8.5 million are younger and living with serious disabilities.

The combined Medicare expenditures – for parts A, B, and D – were $574 billion in 2012.  Taxes, co-pays, and other income produced $537 billion in revenue.  The remaining $37 billion came from trust funds – not as some politicians want us to believe from general governmental spending.

Furthermore, there were two trust funds to help cover that shortfall.  The one we always hear about – the so-called “HI fund” that supports Medicare Part A expenditures – had $244 billion in it at the start of 2012. 

Was that enough?  The trustees advise that there should be at least one year of reserves in that fund at any time.  At the start of the year, it had 92 percent of that – almost exactly the recommended amount. 

As a result, when its share of the 2012 shortfall came to $24 billion – less than anticipated a year earlier – it extended the life of the fund to at least 2026.  That was the headline in many of the news reports.

But there is more.  Based on current projections, the trustees now expect that there will be surpluses added to the fund between 2015 and 2020 – partially because of the Affordable Care Act and partially because of the lower health care inflation of the last few years.

Only the Heritage Foundation could refer to this as a “bleak future.”

Dire warnings aside, we still should not sit on our hands doing nothing over the next thirteen years, nor refuse to consider containing Medicare costs in the future.

Based on current projections, Medicare spending, which consumes 3.6 percent of GDP today, will grow to 6.5 percent of GDP over the next 75 years. 

Some may call this unsustainable growth.  But another way to look at it is to consider that energy costs alone consumed 8.3 percent of GDP in 2010, and helped lead to the investments and innovations that could lead to American energy independence within the next ten to fifteen years. We can always use that kind of investment and innovation in health services.

And this is the biggest exploding myth of all – how much would it actually take to finance a Medicare program that consumed 6.5 percent of our GDP?

According to the trustees, it would take a tax increase of – are you ready for this? - .55 percent to employees and .55 percent for employers.  This isn’t a typo.  We’re not talking 55 percent or even 5.5 percent - we’re talking about five-tenths of 1 percent to preserve Medicare as we know it for everyone alive today.

This is less than the two-thirds of 1 percent it was projected to cost last year, and much less than the 1.9 percent it was projected to cost just five years ago, before Obamacare.  So even the trend line looks good.

None of this, of course, fits into the “Medicare in Crisis” political narrative of our times, and it is why this report will probably get even less attention than last year’s report.

Because this is the truth.  While our Congress still has some work to do on Medicare – most notably reforming the reimbursement formula that has led to the need for an annual “doc fix” that could still add another 3 percent to Medicare’s draw from GDP – the program is mostly on the right track.

There is no reason to scare Americans into believing that Medicare is in crisis, and even less of a reason to argue that the government can’t be trusted to provide efficiently and effectively for the health care needs of its most vulnerable citizens.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/