Almost 54 million Americans rely on Medicare coverage to cover the majority of their healthcare costs, with most of them age 65 or older and living on a fixed income from Social Security and their life savings. It's therefore not surprising that comments from presidential candidate Jeb Bush last month about the future of Medicare restarted a debate that has been going on for decades over the best way to deal with major challenges ahead for the healthcare program. Yet even though calls to "phase out" Medicare entirely are unlikely to survive the political process, the bigger question is how policymakers and legislators should approach Medicare reform in a way that both preserves benefits for current recipients and protects future participants in a financially viable manner.
What Bush said
Bush's comments on Medicare came at a New Hampshire event just over a week ago. Commenting on the future of Medicare, Bush said:
[W]e need to make sure we fulfill the commitment to people that have already received the benefits, that are receiving the benefits. But we need to figure out a way to phase out this program for others and move to a new system that allows them to have something -- because they're not going to have anything.
Bush also had positive comments about prior Medicare reform proposals from Congressman Paul Ryan, who advocated making an alternative system of private health plans available to future Medicare beneficiaries and offering them subsidy vouchers to help pay the premium for whichever health plan a particular individual chooses. Yet when Ryan first proposed his plans several years ago, opposition erupted from supporters of the current Medicare system, who argue that the collective bargaining power of the government agency that runs the program is more beneficial to participants than what they could get from working through private insurance companies. A similar firestorm of debate has returned to the political arena now, with advocates and opponents pointing to different views on Medicare.
Searching for realistic reform
Medicare itself recognizes the need for some type of reform. In their annual report, the trustees of the Medicare Trust Fund reiterated the long-term financial challenges that the program faces, with the latest figures showing that the trust fund will run out of money in 2030 based on current projections.
Yet the Medicare Trustees Report reveals considerable uncertainty about the future course of healthcare costs, which are obviously a key component of Medicare's financial viability. In particular, the report pointed to the Affordable Care Act and to more recent changes to replace the old sustainable-growth-rate model for physician reimbursement with a quality-based incentive-payment program as potentially having dramatic effects on long-term spending patterns.
At the same time, Medicare has to walk a fine line between controlling costs and ensuring that doctors get paid enough to keep them within the program. The Trustees projected that policy changes that lower overall reimbursement growth could limit access to Medicare-participating doctors, putting participants in the uncomfortable position of possibly not being able to get timely care through the program.
A few promising reform areas
Despite the rising volume of political rhetoric, there are some parts of Medicare that look like fertile ground for exploring potential reforms. One of them is in the area of Medicare Advantage plans, also known as Medicare Part C. In some ways, Medicare Advantage incorporates the wishes of those who would prefer a private-market alternative to traditional Medicare, with health-insurance companies offering Medicare Advantage plans. Indeed, Medicare Advantage has gotten more popular, with 1 in 3 Medicare-eligible Americans enrolled in a Medicare Advantage plan as of this year, according to figures from the Kaiser Family Foundation. Lower costs have made those plans attractive to many, although plans have also shifted some costs onto participants, with higher out-of-pocket limits that in many cases bump up against the maximums imposed by the federal government.
Even within traditional Medicare, proposals that try to leave participants bearing at least a portion of their healthcare costs seek to give people an incentive to monitor their use of health services and avoid unnecessary care. Whether it comes from higher deductibles for Part A hospital coverage and Part B medical services or from more dramatic proposals like expanding the use of health savings accounts, having people share in the cost of their healthcare enough to drive smarter behavior is a bipartisan goal.
Finally, although it's obviously controversial, raising the eligibility age for Medicare would be consistent with similar moves in Social Security to respond to changing demographics. Just as longer retirement trends have put pressure on Social Security, Medicare pays more the longer people live, and aligning Medicare and Social Security eligibility ages makes intuitive sense regardless of what you think the particular eligibility age should be.
Medicare's history and importance to older Americans makes it challenging to consider major reforms and their collateral impact on current and future participants. Although extreme positions about Medicare almost certainly can't survive the political process, making sure that older Americans hold on to their ability to get the healthcare they need is a worthy goal in searching for more pragmatic reforms to help make Medicare work better to ensure the financial stability of the program going forward.