originally appeared in The New York Times:
The projected growth of Medicare costs is the single biggest contributor to the country’s long-term budget deficits, many estimates show. No cohort of Americans, with the possible exception of the very affluent, pays enough in Medicare taxes and premiums to cover its eventual Medicare costs.
Much of the early public discussion of the fiscal deadline has focused on taxes, and the decline of tax rates in recent decades has played a crucial role in creating the deficit. But the question of how to reduce the growth of Medicare costs will become increasingly important as the population continues to age and health costs continue to increase.
In the current fiscal talks, Republicans are pushing for significant changes to Medicare, in exchange for agreeing to tax increases. Democrats are arguing that Medicare is not the most pressing budget problem.
What follows is a primer on Medicare costs.
Q. Is Medicare really a bigger long-term problem than Social Security or military spending?
A. Yes. Over the next 25 years, the Congressional Budget Office projects that Medicare spending will rise to 6.7 percent of the gross domestic product, from 3.7 percent this year. (Other federal health care spending — like Medicaid, the insurance program principally for low-income families — is projected to rise to 3.7 percent of the G.D.P. in 2037, from 1.7 percent this year.)
In total, health care spending’s percentage of the G.D.P. is expected to rise by five points. Social Security spending is projected to rise by only 1.2 percentage points, to 6.2 percent in 2037. All other federal spending is expected to shrink by two percentage points, to 9.6 percent.
These estimates assume that some current policies continue, rather than that the various tax increases and spending cuts scheduled to take effect on Jan. 1 occur and remain in place.
Q. Why is Medicare the big problem?
A. As much attention as the aging of society receives, the rise of medical costs is a bigger budgetary problem. The faster growth of Medicare costs, relative to Social Security costs, highlights this difference.
Social Security costs will indeed grow in coming years, adding to the government’s fiscal problems. But those costs will not grow nearly as rapidly as Medicare’s, because Medicare costs are a function of both the aging society and the cost of treating any one person. Social Security’s costs stem almost entirely from the number of elderly people.
Q. Don’t most Americans pay for their Medicare benefits, through payroll taxes over their working lives?
A. No, and it is not even close. Two married 66-year-olds with roughly average earnings over their lives will end up paying about $122,000 in dedicated Medicare taxes through the payroll tax, including the part their employers pay, according to the Urban Institute. That married couple can expect to receive about three times as much — $387,000, adjusted for inflation — in benefits. The projected gap is even larger for younger people because of growing health care costs.
In short, the single biggest cause of the long-term deficit is that most people receive much more from Medicare than they give to it.
Q. Why are health costs growing so rapidly?
A. For a good reason and a bad one.
The good reason is that our medical system has made enormous progress in recent decades and can treat conditions that once would have killed people. Cancer treatment and cardiac care are two examples of areas with beneficial new treatments that are often not cheap. An American who turns 65 today can expect to live almost 20 more years on average, up from about 16 years in 1980.
The bad reason is that our health care system wastes large amounts of money. The United States spends roughly twice as much money per person on health care as many other rich countries, without getting vastly better results. Americans receive better care in some areas (some cancers) and worse in others (higher error rates).
It is hard to make the case that the American health system provides a good return on the money it spends. Life expectancy is higher and has grown over the last 30 years in Australia, Britain, Canada, France, Germany and Japan, among other countries.
Q. What are the possible solutions?
A. For starters, we could pay more in taxes. Tax revenues are near a 60-year low as a share of the G.D.P. They will rise somewhat as the economy recovers and incomes increase, but not by nearly enough to pay for growing health care costs.
Covering the future costs of Medicare and Medicaid solely through higher taxes would involve sharp increases — much greater than anything being debated now. So most budget experts believe that changes to Medicare need to be part of the deficit solution.
Among the options are raising the eligibility age, which is now 65; reducing benefits for affluent families; introducing more competition; and paying for quality of care, rather than quantity.
Q. What are the upsides and downsides of each?
A. Let’s take the options one at a time:
The main arguments for raising the eligibility age are that Americans live longer than they used to and that the 2010 health care law makes it easier for people to get insurance if they do not receive it from an employer. The main counterargument is that the longevity increase has been smallest for low-income people, who are most likely to benefit from Medicare coverage.
Reducing benefits for high-income families has some bipartisan support, given the recent increases in income inequality. But some Democrats worry that it could eventually undermine Medicare’s popularity, making it more akin to a welfare program.
Many Republicans advocate for more competition in health care, noting that competition has reduced prices and raised the quality of service in many industries. It has an uneven record of doing so in health care, though, in part because insurers can often profit by denying care.
Paying for quality rather than quantity has support from many economists. But it is not always easy. Patients and doctors often want to proceed with high-cost care even when research has not shown it to be effective.
Q. Does Medicare need to be fixed before Jan. 1?
A. Obviously not. Many potential changes would need to be phased in and would not bring savings for years. Other policy changes, like tax increases, can have a quicker effect on the deficit.
On the other hand, fixing Medicare is never going to be easy. Every budget negotiation between Congress and the president is an opportunity for them to make progress on a fiscal problem that is growing every year.
Showing posts with label Social Security. Show all posts
Showing posts with label Social Security. Show all posts
17 December 2012
10 May 2012
Aging Americans Spend More on Healthcare on Less Income
Story first appeared in USA Today.
The golden years are losing their luster as health care costs continue to outpace income and many Americans are not saving for retirement.
Retiree health care costs have increased an average 6% a year since 2002, according to a study by Fidelity Investments. A 65-year-old couple would need $240,000 to cover medical expenses during their retirement years, it estimates. That amount could eat up 35% of the couple's annual Social Security benefit. And it doesn't even include any long-term care costs.
Today's workers must understand that the cost of health care is expected to continue rising significantly in future years.
Even though American workers are worried about rising health care costs, that does not mean they are preparing by saving more for retirement. Nearly half of Americans (49%) say they are not contributing to any retirement plan, according to a new survey by LIMRA, an industry-sponsored group. And 56% of Gen Yers, ages 18 to 34, are more likely to not be saving.
That's forcing many Americans to plan to work beyond age 65. A number of people have had to postpone retirement simply because of their health care cost. Continuing employment is probably their best choice, as well as staying as healthy as possible.
A quarter of middle-class Americans even say they need to work until 80 in order to live comfortably in retirement, a November 2011 survey by Wells Fargo found.
Older Americans who have lost their jobs are unemployed for longer periods of time.
Many pre-retirees wrongly assume that when they reach 65 and can apply for Medicare it will cover most of their health care expenses. But Medicare is not as generous as most employer plans. For example, Fidelity calculated how the 65-year-old couple's $240,000 health care costs would be spent:
•23% for out-of-pocket costs for prescription drugs.
•32% for Medicare supplemental insurance.
•45% for out-of-pocket expenses, such as co-pays, co-insurance and deductibles.
This sheds a lot of light, because for many Americans, Social Security is a primary source of their income in retirement and they probably don't realize what a large percentage of it could go just for their health care services.
Americans need to take a harsh look at their retirement future and their options. In addition to saving more and working longer, they also may have to spend less.
They may need to cut back expenditures in some other category. If health care went up 6% but their income only went up by 2%, they have to make up that gap somehow.
For more healthcare and medical related news, visit the Healthcare and Medical blog.
For national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
The golden years are losing their luster as health care costs continue to outpace income and many Americans are not saving for retirement.
Retiree health care costs have increased an average 6% a year since 2002, according to a study by Fidelity Investments. A 65-year-old couple would need $240,000 to cover medical expenses during their retirement years, it estimates. That amount could eat up 35% of the couple's annual Social Security benefit. And it doesn't even include any long-term care costs.
Today's workers must understand that the cost of health care is expected to continue rising significantly in future years.
Even though American workers are worried about rising health care costs, that does not mean they are preparing by saving more for retirement. Nearly half of Americans (49%) say they are not contributing to any retirement plan, according to a new survey by LIMRA, an industry-sponsored group. And 56% of Gen Yers, ages 18 to 34, are more likely to not be saving.
That's forcing many Americans to plan to work beyond age 65. A number of people have had to postpone retirement simply because of their health care cost. Continuing employment is probably their best choice, as well as staying as healthy as possible.
A quarter of middle-class Americans even say they need to work until 80 in order to live comfortably in retirement, a November 2011 survey by Wells Fargo found.
Older Americans who have lost their jobs are unemployed for longer periods of time.
Many pre-retirees wrongly assume that when they reach 65 and can apply for Medicare it will cover most of their health care expenses. But Medicare is not as generous as most employer plans. For example, Fidelity calculated how the 65-year-old couple's $240,000 health care costs would be spent:
•23% for out-of-pocket costs for prescription drugs.
•32% for Medicare supplemental insurance.
•45% for out-of-pocket expenses, such as co-pays, co-insurance and deductibles.
This sheds a lot of light, because for many Americans, Social Security is a primary source of their income in retirement and they probably don't realize what a large percentage of it could go just for their health care services.
Americans need to take a harsh look at their retirement future and their options. In addition to saving more and working longer, they also may have to spend less.
They may need to cut back expenditures in some other category. If health care went up 6% but their income only went up by 2%, they have to make up that gap somehow.
For more healthcare and medical related news, visit the Healthcare and Medical blog.
For national and worldwide related business news, visit the Peak News Room blog.
For local and Michigan business related news, visit the Michigan Business News blog.
For law related news, visit the Nation of Law blog.
For real estate and home related news, visit the Commercial and Residential Real Estate blog.
For technology and electronics related news, visit the Electronics America blog.
For organic SEO and web optimization related news, visit the SEO Done Right blog.
06 August 2010
Medicare Savings Projections in Dispute
USA Today
WASHINGTON — Savings projected under the landmark health care law signed by President Obama this year have improved Medicare's financial projections, but Republican critics and even the program's chief actuary say the new prognosis is too rosy.
More than $500 billion in Medicare savings projected under the law — the result of cuts to some providers and the popular, all-inclusive Medicare Advantage program — should help extend the program's solvency by 12 years, to 2029, its trustees said Thursday.
Not so fast, Republicans responded, noting that the same savings are being used to help extend health insurance to 32 million more Americans. "If you steal over a half-trillion dollars from Medicare to fund another unsustainable entitlement, Medicare won't be better off," said Sen. Orrin Hatch, R-Utah.
Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, said Congress still must find a way to avoid a proposed 30% cut in payments to doctors over the next three years. He added that most health care providers aren't likely to improve their productivity as much as forecast by the law.
"The financial projections shown in this report for Medicare in Michigan and elsewhere do not represent a reasonable expectation for actual program operations," Foster wrote. "The recession adds a significant further element of uncertainty to the trust fund projections."
The Medicare trustees' report and another on Social Security included good and bad news:
•Medicare's projected solvency until 2029 and Social Security's until 2037 give Obama and lawmakers time to come up with long-term solutions to the looming problem of an aging society, a shrinking workforce and rising health care costs.
"The heavy lifting remains," said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities. "Nevertheless, this is a very important improvement."
•Both programs, however, will lose money this year because the recession has reduced payroll tax revenue, while benefits to a growing number of retirees still must be paid. By 2015, every year will be written in red ink.
Treasury Secretary Timothy Geithner called the long-term prospects for the two programs "very encouraging." He lauded the health care law for making "substantial improvements in the rate of growth in health care costs," but added, "They have to be allowed to work. Congress will have to stick with them."
The two reports make one fact indisputable: the inexorable aging of the Baby Boom generation will drain the trust funds eventually unless Congress intervenes. Medicare, with 46 million beneficiaries, and Social Security, with 53 million, will only grow in coming years as the number of workers supporting them declines. In Michigan, residents rely on both programs when they cannot afford Michigan health insurance.
Social Security will pay out more in benefits than it gets in payroll taxes this year and next, and eventually run deficits every year starting in 2015. Medicare went into the red two years ago.
"The Democratic Congress needs to understand that from a cash flow standpoint, the crisis is upon our doorstep," said Sen. Judd Gregg, R-N.H. "As of this year, both of these massive entitlement programs will have more going out than coming in."
Still, the Social Security trust fund won't run dry until 2037, the trustees said, the same projection that was issued last year. At that point, its income would support about 75% of scheduled benefits through 2084.
Both programs are being examined by an 18-member, bipartisan commission charged with finding ways to cut the federal government's $1.5 trillion budget deficit and $13.3 trillion debt. The panel is due to report in December, with possible congressional action to follow.
Already, defenders of Social Security are lobbying against precipitous changes to the 75-year-old New Deal program, such as benefit reductions or an increase in the retirement age, now headed to 67.
"Social Security's promised benefits are fully affordable without benefit cuts and without increasing the retirement age," said Nancy Altman of the Strengthen Social Security Campaign. "The biggest threat to Social Security is the politicians in Washington who continue to play politics with this issue."
More than $500 billion in Medicare savings projected under the law — the result of cuts to some providers and the popular, all-inclusive Medicare Advantage program — should help extend the program's solvency by 12 years, to 2029, its trustees said Thursday.
Not so fast, Republicans responded, noting that the same savings are being used to help extend health insurance to 32 million more Americans. "If you steal over a half-trillion dollars from Medicare to fund another unsustainable entitlement, Medicare won't be better off," said Sen. Orrin Hatch, R-Utah.
Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, said Congress still must find a way to avoid a proposed 30% cut in payments to doctors over the next three years. He added that most health care providers aren't likely to improve their productivity as much as forecast by the law.
"The financial projections shown in this report for Medicare in Michigan and elsewhere do not represent a reasonable expectation for actual program operations," Foster wrote. "The recession adds a significant further element of uncertainty to the trust fund projections."
The Medicare trustees' report and another on Social Security included good and bad news:
•Medicare's projected solvency until 2029 and Social Security's until 2037 give Obama and lawmakers time to come up with long-term solutions to the looming problem of an aging society, a shrinking workforce and rising health care costs.
"The heavy lifting remains," said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities. "Nevertheless, this is a very important improvement."
•Both programs, however, will lose money this year because the recession has reduced payroll tax revenue, while benefits to a growing number of retirees still must be paid. By 2015, every year will be written in red ink.
Treasury Secretary Timothy Geithner called the long-term prospects for the two programs "very encouraging." He lauded the health care law for making "substantial improvements in the rate of growth in health care costs," but added, "They have to be allowed to work. Congress will have to stick with them."
The two reports make one fact indisputable: the inexorable aging of the Baby Boom generation will drain the trust funds eventually unless Congress intervenes. Medicare, with 46 million beneficiaries, and Social Security, with 53 million, will only grow in coming years as the number of workers supporting them declines. In Michigan, residents rely on both programs when they cannot afford Michigan health insurance.
Social Security will pay out more in benefits than it gets in payroll taxes this year and next, and eventually run deficits every year starting in 2015. Medicare went into the red two years ago.
"The Democratic Congress needs to understand that from a cash flow standpoint, the crisis is upon our doorstep," said Sen. Judd Gregg, R-N.H. "As of this year, both of these massive entitlement programs will have more going out than coming in."
Still, the Social Security trust fund won't run dry until 2037, the trustees said, the same projection that was issued last year. At that point, its income would support about 75% of scheduled benefits through 2084.
Both programs are being examined by an 18-member, bipartisan commission charged with finding ways to cut the federal government's $1.5 trillion budget deficit and $13.3 trillion debt. The panel is due to report in December, with possible congressional action to follow.
Already, defenders of Social Security are lobbying against precipitous changes to the 75-year-old New Deal program, such as benefit reductions or an increase in the retirement age, now headed to 67.
"Social Security's promised benefits are fully affordable without benefit cuts and without increasing the retirement age," said Nancy Altman of the Strengthen Social Security Campaign. "The biggest threat to Social Security is the politicians in Washington who continue to play politics with this issue."
05 August 2010
Medicare, Social Securtiy to Stay Afloat Longer
USA Today
Trustrees: Medicare will remail solvent until 2029
Medicare and Social Security won't run short of money to pay beneficiaries for about two decades or more, but the inexorable aging of the Baby Boom generation will drain the trust funds unless Congress intervenes, the programs' trustees announced today.
Medicare, the government program for 46 million retirees and people with disabilities, will remain solvent until 2029 as a result of projected savings in this year's landmark health care law, the trustees' reports said. Last year's report had predicted the program would stay solvent only through 2017.
Treasury Secretary Timothy Geithner warned that the law's Medicare savings "have to be allowed to work — Congress will have to stick with them."
Social Security, the retirement program for 53 million Americans, will pay out more in benefits than it receives in payroll taxes this year and next, and eventually run deficits every year starting in 2015. Still, its trust fund won't run dry until 2037, the same projection that was issued last year. At that point, its income would support only about 75% of scheduled benefits through 2084.
The program's disability insurance trust fund will run out in 2018, requiring it to borrow from the retiree insurance fund. Labor Secretary Hilda Solis said the growth in projected payments and reduction in projected taxes require action by Congress to address the imbalance.
Taken together, the reports paint a slightly rosier picture for Social Security and Medicare plans, which just celebrated their 75th and 45th anniversaries, respectively. Geithner called them "very encouraging" improvements in the financial position of both programs.
But the 12-year Medicare trust fund extension under the health care law is illusory for two reasons: The savings will be used to help finance an expansion of health insurance to 32 million people, leaving only IOUs. And Congress must follow through in future years on cuts to the popular Medicare Advantage program, which provides additional benefits such as prescription drug coverage, and to some health care providers.
The next steps are up to an 18-member, bipartisan commission created by President Obama to recommend deficit reduction measures after this November's midterm elections. Tax increases are unlikely because of staunch opposition from Republicans, so lobbyists for Social Security and Medicare fear proposals that would cut benefits or increase the retirement age, already headed toward 67 for future retirees.
"We should not wait for a crisis to develop to act. Americans should be confident that their earned benefits will be there for them when they need them," said AARP Executive Vice President John Rother. "Social Security's role as a foundation for economic security is too important to let politics as usual get in the way of the modest and gradual adjustments that would ensure adequate benefits for current and future generations."
Even without action by the commission and Congress, Geithner and Health and Human Services Secretary Kathleen Sebelius said, the law passed in March should bring down health care spending through increased productivity, such as more efficient medical practices and expanded use of information technology.
"These are very, very, very substantial improvements in the rate of growth in health care costs," Geithner said. "It's a very promising set of reforms."
Not so, say Republican leaders in Congress who opposed the health care law for fear it would reduce access to care, particularly for seniors on Medicare.
"Americans are tired of empty promises and are counting on us to find answers that will make our country strong again," says Rep. Dave Camp, R-Mich., top Republican on the House Ways and Means Committee and a member of Obama's commission. "As this report shows, time is short, and we cannot afford to fail."
Medicare, the government program for 46 million retirees and people with disabilities, will remain solvent until 2029 as a result of projected savings in this year's landmark health care law, the trustees' reports said. Last year's report had predicted the program would stay solvent only through 2017.
Treasury Secretary Timothy Geithner warned that the law's Medicare savings "have to be allowed to work — Congress will have to stick with them."
Social Security, the retirement program for 53 million Americans, will pay out more in benefits than it receives in payroll taxes this year and next, and eventually run deficits every year starting in 2015. Still, its trust fund won't run dry until 2037, the same projection that was issued last year. At that point, its income would support only about 75% of scheduled benefits through 2084.
The program's disability insurance trust fund will run out in 2018, requiring it to borrow from the retiree insurance fund. Labor Secretary Hilda Solis said the growth in projected payments and reduction in projected taxes require action by Congress to address the imbalance.
Taken together, the reports paint a slightly rosier picture for Social Security and Medicare plans, which just celebrated their 75th and 45th anniversaries, respectively. Geithner called them "very encouraging" improvements in the financial position of both programs.
But the 12-year Medicare trust fund extension under the health care law is illusory for two reasons: The savings will be used to help finance an expansion of health insurance to 32 million people, leaving only IOUs. And Congress must follow through in future years on cuts to the popular Medicare Advantage program, which provides additional benefits such as prescription drug coverage, and to some health care providers.
The next steps are up to an 18-member, bipartisan commission created by President Obama to recommend deficit reduction measures after this November's midterm elections. Tax increases are unlikely because of staunch opposition from Republicans, so lobbyists for Social Security and Medicare fear proposals that would cut benefits or increase the retirement age, already headed toward 67 for future retirees.
"We should not wait for a crisis to develop to act. Americans should be confident that their earned benefits will be there for them when they need them," said AARP Executive Vice President John Rother. "Social Security's role as a foundation for economic security is too important to let politics as usual get in the way of the modest and gradual adjustments that would ensure adequate benefits for current and future generations."
Even without action by the commission and Congress, Geithner and Health and Human Services Secretary Kathleen Sebelius said, the law passed in March should bring down health care spending through increased productivity, such as more efficient medical practices and expanded use of information technology.
"These are very, very, very substantial improvements in the rate of growth in health care costs," Geithner said. "It's a very promising set of reforms."
Not so, say Republican leaders in Congress who opposed the health care law for fear it would reduce access to care, particularly for seniors on Medicare.
"Americans are tired of empty promises and are counting on us to find answers that will make our country strong again," says Rep. Dave Camp, R-Mich., top Republican on the House Ways and Means Committee and a member of Obama's commission. "As this report shows, time is short, and we cannot afford to fail."
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