Sunday, November 26, 2017

Is Medicare Free? Don't Count On It, Get Ready To Pay!

Medicare Not Free If You Want Good Coverage
Like many people, I was under the impression that Medicare was free and that after the age of 65 at least the burden of healthcare payments would be lifted from my shoulders. President Lyndon Johnson signed the Medicare and Medicaid programs into law in 1965 to cover the cost of healthcare for many Americans. But this does not answer the question “is Medicare Free?” Many Americans share the misconception that Medicare coverage is free. This is generally rooted in the fact that Medicare part A is indeed free for most Americans, however, more than one part exists to this very complicated program. The dirty little secret is that part A will only suffice or be enough if you are poor or willing to become poor if you become ill and run up massive healthcare cost. 

  • Premium-free Part A. You usually don't pay a monthly premium for Medicare Part A (Hospital Insurance) coverage if you or your spouse paid Medicare taxes while working. - Basic Policy
  •  You pay a premium each month for Medicare Part B. Most people will pay the standard premium amount, in 2017 of $134 a month. If your modified adjusted gross income is above a certain amount, you may pay more. - Less Basic Policy
  •  Your out-of-pocket costs in a Medicare Advantage Plan (Part C) depend on, many factors such as range of coverage, where you live, and more Price per month varies greatly. - also known as "Medigap Plans" these plans are designed to pick up cost that Medicare sidesteps.

Rather than being shocked I was disappointed to find out how limited Medicare A is. This means that in order to protect your assets or see you don't get a huge medical bill you still have to carry Medicare part B or what they call "supplements." Generally, anyone that is interested in protecting their savings and removing the risk of bankruptcy will sign up for the "optional" part B and very likely more. This means many people have little choice but to make monthly payments that are deducted directly from their Social Security checks. This is a topic many people seem not inclined to talk about or something that those heading towards retirement simply don't want to hear. There are many complex guidelines and laws that have to be examined to determine the exact cost of Medicare but it is safe to say a program picking up all our healthcare cost is not free. In fact, as we look down the road it appears the path forward is about to become much grimmer.

Medicare Is A Budget Buster!
The Heritage Foundation Reports that,"The rising cost of Medicare is placing an increasing burden on current and future taxpayers, as well as exacerbating the poor financial condition of a program on which America’s seniors depend in their retirement." most Americans know this but have chosen to ignore this reality or  decided to kick the can down the road and deal with the situation at a later date or just hope for the best. Ironically, making the cost of rising Medicare cost even more certain is the continued stubborn refusal of the government to let us die, that is why I predict whether you agree or disagree with the idea of euthanasia it is destined to become a major social issue in coming years. With people living longer and technologies ability to extend a person's life well beyond where they feel it has any "real quality" the issue of euthanasia will not go away. Given both the sheer size of Medicare spending and the future projections, Congress cannot even begin to address America’s crushing debt without slowing its growth. It should be considered a red flag that currently much of Medicare debt is not included in conventional debt projections on the nation’s books.

The demographic pressure of baby boomers joining Medicare at the rate of 10,000 per day over coming years will cause enrollment to soar from 50.7 million beneficiaries in 2012 to over 81 million beneficiaries in 2030. Medicare is the fastest-growing program in the federal budget and already accounts for about 15 percent of federal spending. In 2012, Medicare spending reached $557 billion in 2012, and it is expected to nearly double in the next 10 years. Medicare spending accounted for 3.67 percent of the entire economy, measured as gross domestic product (GDP), in 2011and will rise to an estimated 5.8 percent of GDP in 2030. The Medicare Office of the Actuary estimates that, under the most realistic scenario, Medicare has an unfunded obligation of $37 trillion over the next 75 years.

It is conventionally assumed that Medicare is more efficient than private insurance because it has lower administrative costs but this claim is somewhat misleading, the public-private comparisons made on its behalf are often skewed. Medicare patients comprise not only an aged insurance pool, they are also far more likely to be suffering from chronic medical conditions and are more physically disabled than the general working population that is covered by private insurance. Medicare is also the primary coverage for a special class of patients suffering from end-stage renal disease. The profile of the Medicare pool guarantees much higher health spending for its patients than those enrolled in private insurance. Thus, expressing administrative costs as a percentage of total program costs driven by this older and sicker population makes the official administrative costs for Medicare of around 2 percent to 3 percent of claims only appear low.

Most Americans Know Very Little About Medicare
While the government boasts that Medicare has very low administrative costs, they are in fact higher than those of private insurance even after including money spent on non-administrative functions, such as marketing and profit. On top of this much higher Medicare costs are generated by high levels of waste, fraud, and abuse within the program. Medicare's complex administrative payment system, combined with relatively rapid payment of largely unexamined claims has been an invitation to dishonest providers seeking to game the system at the expense of the taxpayer. The program also transfers a "hidden administrative costs" by shifting to doctors, hospitals, clinics, and skilled nursing facilities all the hours necessary to comply with a mountain of Medicare rules, regulations, and related paperwork.

While conventional methods of “cost control” have ratcheted down reimbursements for doctors and hospitals they have in recent years not been enough. Cuts have hit seniors in the form of reduced access to care and also shifted the costs of Medicare’s "below-market payment rates" to younger working Americans in the form of higher premiums for their private health insurance. This almost guarantees that additional conflict will arise between different age groups of our society concerning financial policy over entitlements as the bill for such things is squarely placed at the feet of today's youth. It is clear that each round of Medicare cost shifting to non-Medicare patients routinely shows up in higher insurance premium costs for younger workers and their families.

Sadly, these are already the people who are already paying the bulk of Medicare bills through their taxes. In any given year, through a combination of payroll and income taxes, taxpayers finance almost $9 of every $10 spent on the Medicare program but this is an uphill battle. Today a single male who retired at 65 in 2011 and earned the average wage ($43,500 in 2011 dollars) would have paid $60,000 in Medicare taxes but received $170,000 in benefits, a difference of $110,000. A one-earner couple, who retired in 2011 and earned the average wage would have also paid $60,000 in Medicare taxes but received total benefits worth $357,000, a difference of $297,000. This imbalance contributes to the Hospital Insurance Trust Fund’s projected financial insufficiency. 

Now let's look at the figures a couple I know recently shared with me, these "real life numbers" are not pretty. Both the husband and wife each received about $1,000 each per month and thinking Medicare was free they planned to retire on this income. To say they were shocked to find they would have to continue paying out big bucks after turning 65 and going on Medicare is an understatement. Knowing that it is not difficult to rack up a $100,000 plus bill for a short stay in the hospital it is no wonder people are both fearful and surprised of what holes often exist in coverage, even a 20 percent co-pay can result in a huge bill. In order to protect what they had worked years to save they were forced into making the ugly decision to take Part B, Part C, and Part D in order to fill in the massive holes in coverage.

While far less than the $20,000 dollar plus healthcare cost they had been paying for a policy with high deductibles the cost of Medicare was something they had not anticipated in their "golden years." The monthly cost of Medicare will leave this couple with a meager $1,200 a month of income. This is not the kind of retirement income they envisioned being forced to exist on. Fortunately for them they have over the years cobbled together around one hundred thousand dollars in savings to supplement this, however, with today's interest rates having turned an expected 5 percent stream of interest from over $400 dollars a month into a mere trickle of around $50 sure doesn't help. They reminded me that many other Americans are in the same boat but a huge number of those people lack any saving from which they can draw upon in case of an emergency, those are the people in a real pickle.

A few final notes, if you are in a Medicare Advantage plan, also known as part C, you get both your Medicare Part A and Part B coverage through a private health insurance company contracted with Medicare. Today, roughly three of four Medicare patients are enrolled in the traditional Medicare program, this leaves just over a quarter of Americans enrolled in the more comprehensive part C known as Medicare Advantage. For many people even affording part B is a reach too far and if they have few assets if they do become ill a very good chance exist that the bills will never be paid. As for Part D, it has to do with drug coverage, the high cost of drug prescriptions has become a major expense and concern for many Americans.

After these basic choices, if you can afford it, as usual, other options also are available. All in all my research has brought me to the conclusion that many Americans have chosen to avoid confronting the issue of healthcare in their later years until the very last moment. I also found that like all government programs the Medicare program is massively complicated, flawed and crafted to meet the needs of powerful special interests, this is masked by both its size and nobody really wanting to look directly at a problem with few easy answers. Do not give the government to much credit for crafting a program which will supply older Americans with healthcare at a reasonable price. While the Medicare system may be very difficult to navigate the task pales in comparison to the problems this area of healthcare faces going forward.

Footnote; Few Americans were fans of the recently deceased Cuban El Presidente Fidel Castro but he did leave one positive legacy and that is Cuba's quality healthcare system. The poor country of Cuba has managed to guarantee access to care for all segments of the population and obtain results similar to those of the most developed nations. The article below delves into ways we can fix our broken healthcare system.

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