A Comment Worth Reading- The Cost of Medicare

Following is the text of a comment appearing on this blog. It is well worth reading.

Too many Americans think provisions can be made for health costs, including long term care costs, etc. by asking the “wealthy” to pay more – and without disrupting the economy.

Fifteen years ago, it was my privilege to attend a focus group conducted by Congressional direction included in the Medicare Modernization Act of 2003 – Health Care That Works for All Americans. I attended a forum in Cincinnati, Ohio.

We discussed health reform in detail. One thing was abundantly clear from that discussion among everyday Americans (who took the time to show up for a discussion on a Saturday morning in downtown Cincinnati), “Americans want the best health care coverage and long term care coverage YOUR money will buy.”

My point is simply that, like the current M4A discussion, few people know the true cost of Medicare, and even fewer would be willing to finance health care and long term care from taxes – if they knew the cost. For example, here is an estimate of the annual average cost for an individual eligible for Medicare (with an “F” plan Medicare Supplement):


Part A $5,064 (premium for those who did not contribute FICA-Med)

Part B $6,432 (Part B premium $134 * 4 * 12, general revenues fund 75% of the benefit)

Part D $1,248 (Part D premium $26 * 4 * 12, general revenues fund 75% of the benefit)

Supplement (F) $3,912 ($326 * 12)

Total $16,656

And, remember that certain structures are in place to manage the cost of services provided to Medicare beneficiaries – Diagnostic Related Groups, Resource Based Relative Value Schedules, Medicare Balance Billing Limits. Had those structure not been in place, had Medicare reimbursed providers at the same rates they charge to those who are not Medicare-eligible, the cost would be much higher.

In 2017, the Medicare Payment Advisory Commission (MedPAC) reported that average commercial prices were about 28 percent higher than Medicare Fee For Service prices and that the difference has increased slightly since 2010 (Medicare Payment Advisory Commission 2017).

Importantly, defenders of Medicare assert that there is no cost shift to private insurance today. If providers can’t charge younger Americans more, they will have to further limit the number of government-insured beneficiaries. We have seen this with respect to Medicaid – where Medicare reimbursements are, on average, 39% higher than Medicaid reimbursements (varies dramatically from state to state, from a low in Rhode Island to a high in Alaska where reimbursement rates are almost the same).

I doubt 10% of the current members of Congress can estimate the average annual cost incurred by and for Medicare beneficiaries within $1,000 a year.

Finally, supposedly, Americans spend 18% of GDP on medical services. My economics knowledge is modest. However, I do know that GDP can be calculated in three ways, one of which is income based. GDP is about $20.4 Trillion. Disposable personal income (income after income and employment taxes) is about $15 Trillion. So, 18% of GDP would be 24% of DPI.

How many Americans are willing to see a 24% deduction on their paycheck to pay for health coverage? And, that is without financing long term care. The bottom line is that we won’t solve the access and cost of coverage issues until we are willing to do as individuals what we are already doing as a society.

One comment

  1. As large as the amount on total health care spending is, it seems to me it will go higher because of the aging population and continued amazing, and expensive, advances in medical technology and medicines.

    I think Americans will adjust to slightly higher year by year increases in medical costs, which over time will add up to a very significant increase compared to today.

    I think back on what my grand parents generation must have spent on medical expenses, I doubt it is 15 per cent of my generation. But the medical care improved many, many times more.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s